European Communities WT/TPR/S/214/Rev.1 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. Services is the dominant sector in the EC, due  to its contribution to both gross value-added 
and employment. Accounting for only 20% of intra-EC  trade, services remain the priority as regards 
the creation of a genuine internal market by th e end of 2009, through the removal of remaining 
regulatory and administrative hurdles between Memb er States. Since its last Review, the EC has 
adopted the 2007 telecoms reform package and the po stal directive aimed at completing the internal 
market for postal services by 2010-12. Moreover,  the EC is implementing the financial services 
strategy 2006-10 and the action plan for tran sport 2002-10. Nevertheless , many other services 
activities are not subject to a comprehensive in ternal market policy; these include tourism, 
distribution, construction, engi neering and consultancy, certifi cation and testing services, and 
employment agencies. Certain services, such as teleco ms, are regulated at the EC level, while others 
(e.g. education, health) are mainly the responsibility of individual Member States. 
2. As a result of the 2003 reforms of the Comm on Agricultural Policy (CAP), centred on the 
move towards the Single Payment Scheme, the share of support under this Scheme increased from 1% 
of the total producer support estimate (€1.4 billion) in 2004 to 33% (€32.4 billion) in 2007.  At the 
same time, product-specific support linked to produc tion and/or prices, still exists, albeit at reduced 
levels.  Since the last TPR of the EC, reforms of  its CAP have continued to enhance the market-
orientation and competitiveness of the sugar, fru it and vegetables, and wine subsectors. Export 
subsidies have been abolished for fruits, vegetables, and wine, and susp ended for sugar.  However, the 
EC continues to subsidize exports of a range of  agriculture products, including processed agricultural 
products.  Export subsidizes for dairy products we re reinstated in January 2009.  The domestic 
support regimes for bananas and cotton have also been further reformed. In 2006, the total amount 
spent on the CAP represented 46% of Community e xpenditure. Using ISIC, the simple average MFN 
tariff on agriculture, hunting, forestry and fishing is 9.3% (down from 10.9% in 2006). However, all 
products with tariff rates above 100% re main agricultural (WTO definition). 
3. The manufacturing sector (ISIC definition) provides around one fifth of the EC's output, 
accounts for some three quarters of merchandise exports, and is still a major beneficiary of state aid. 
As a result of declining productivity growth, a ne w industrial policy has been implemented since 
2005. Together with measures at Member State level, the policy is aimed at fostering the 
competitiveness of the sector. MFN tariffs on manuf actured imports average 6.7% (6.8% in 2006). 
Overall, in industries requiring inputs (agricultural commodities in particular) that are also produced 
by the EC, the tariff shows mixed escalation; because  of the lack of competitiveness, partly resulting 
from high tariff protection of the industries processing  these inputs, exports of their products require 
subsidies. In industries requiring inputs (certain ag ricultural and mineral produc ts in particular) that 
are not produced by the EC, the tariff shows positive escal ation, i.e. high effective rates of protection. 
4. The EC is the world's largest energy importer and the second largest consumer. Faced with 
unprecedented energy challenges, the EC is implementi ng its action plan on energy efficiency so as to 
save 20% of its energy consumption by 2020 thro ugh changes in consumer behaviour and energy 
efficient technologies. It has also set a target of  20% increase in the use of renewable energy and 20% 
cut in greenhouse gas emissions by 2020. Some of the recent energy policy developments include the 
adoption of a third package of legislative proposals ai med at solving the structural shortcomings in the 
energy market, notably lack of competition. Imports of electricity are duty free. WT/TPR/S/214/Rev.1 Trade Policy Review 
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(2) AGRICULTURE AND RELATED ACTIVITIES  
(i) Main features 
5. The contribution of agriculture (including livestock, hunting, forestry, and fishing) to GDP is 
relatively low in the EC as a whole, but remains si gnificant for new Members States such as Bulgaria 
and Romania (Table I.1).  About 17.9 million peopl e were employed in EC-27 agriculture in 2005, 
almost 10% less than in 2003.1  France has the largest agricultu ral area, followed by Spain and 
Germany (Table IV.1).  The average utilized ag ricultural area per holding was about 21 hectares in 
2005;  the Slovak and Czech Republics have significantly  higher average farm sizes than the rest of 
the EC (143 and 131.7 hectares, respectively, in 2005).   
Table IV.1 
Selected agricultural statistics, 2005 and 2007 
 
Agricultural  
area 
('000 hectares, 2005) Final production of the 
"agricultural industry" 
at basic prices 
(€ billion, 2007)a External trade balance in food 
and agricultural products  
(€ million, 2007) b 
Austria 2,690.2 6.0 485.8 
Belgium 1,374.4 7.3 -1,947.7 
Bulgaria 2,487.6 3.0 158.4 
Cyprus 142.1 0.6 -102.3 
Czech Republic 3,518.0 4.2 -5.8 
Denmark 2,662.6 9.1 2,332.6 
Estonia 906.8 0.6 155.4 
Finland 2,292.3 4.1 293.9 
France 27,490.4 64.7 8,300.6 
Germany 16,931.9 45.2 -3,550.9 
Greece 3,905.8 10.3 -147.0 
Hungary 4,045.3 6.5 571.8 
Ireland 4,139.2 6.0 3,477.6 
Italy 12,405.9 43.1 -427.6 
Latvia 1,773.8 0.9 98.9 
Lithuania 2,648.9 2.0 449.6 
Luxembourg 130.9 0.3 -45.0 
Malta 10.3 0.1 -15.1 
Netherlands 1,914.3 22.9 -3,362.8 
Poland 15,477.2 19.8 419.7 
Portugal 3,502.9 6.6 -584.0 
Romania 10,337.1 13.2 -529.8 
Slovak Republic 1,840.4 1.9 -13.9 
Slovenia 488.8 1.1 -227.1 
Spain 23,741.0 39.0 -2,574.5 
Sweden 3,118.0 4.7 32.4 
United Kingdom  14,961.6 21.6 -5,680.3 
EC-27 161,617.9  343.8  -2,437.1  
a Output is valued at basic prices, defined as the price recei ved by producers, after deduction of  taxes on products but includ ing  
subsidies on products. Output of the agricultural industry is  made up of the sum of the output of agricultural products, 
agricultural services, and of the goods and services produ ced in inseparable non-agricu ltural secondary activities. 
b Extra EC-27 trade based on Harmonized System definition: Chapters 01 to 24. 
Source: Eurostat NewCronos database (agricultural area and final production);  and Eurostat COMEXT database (external 
 trade balance). 
6. The value of total agricultural production of the EC-27 was €343.8 billion in 2007:  the 
leading products in value terms were milk (14%), followed by pigs (8.6%), cattle (8.4%), and fresh 
vegetables (8.4%).  Among the main arable crops ( cereals, rapeseed, sugar be et), there have been 
significant – partly policy-induced – shifts in the crop areas in recent years (Table IV.2).  The area 
                                                      
 1 Eurostat (2008a) , p. 30 .  This figure takes into account all farm labour force on holdings larger than 
1 ESU (European Size Unit). European Communities WT/TPR/S/214/Rev.1 
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planted with rapeseed increased by 31.5% in 2007 co mpared with the average area in 2002-06, while 
the sugar beet area decreased by almost 13%.  
Table IV.2 
EC crop area  
('000 hectares) 
 Average  
2002-06 2006 2007a % change 
2007/2006 % change 
2007/2002-06 
Cereals (excluding rice) 59,368 57,010 57,870 1.5 -2.5 
Common wheat 22,302 21,953 22,102 0.7 -0.9 
Durum wheat 3,739 3,021 3,033 0.4 -18.9 
Rye and maslin 2,720 2,422 2,572 6.2 -5.4 
Barley 13,908 13,780 13,691 -0.6 -1.6 
Oat and mixed grain 4,616 4,606 4,524 -1.8 -2.0 
Grain maize 9,368 8,542 8,812 3.2 -5.9 
Triticale 2,424 2,442 2,352 -3.7 -3.0 
Rice 420 412 408 -0.9 -2.8 
Sugar beet 2,254 2,030 1,970 -2.9 -12.6 
Rapeseed 4,605 5,333 6,057 13.6 31.5 
a Estimate. 
Source :  Eurostat online information.  Viewed at: http://epp.e urostat.ec.europa.eu/portal/page?_pageid=1073,46587259&_ 
 dad=portal&_schema=PORTAL& p_product_code=KS-SF-07-086. 
7. During the period under review, EC food prices increased sharply reflecting a number of 
factors, including strong growth in global demand for agricultural commodities and food:  the annual inflation rate for food was 7.3% at end-August 2008, ranging from 4.5% in Greece to 19.6% in 
Latvia.  The average share of food in total hou sehold expenditure in the EC-27 was 14% in 2007, 
ranging from 9% in the United Kingdom to 34% in Romania. 
8. Forests covered around 177 million ha in 200 5 (around 42% of the EC-27 landmass);  
coverage varies greatly across the EC (ranging from 1% in Malta to 77% in Finland), reflecting 
bio-geographic and climatic diversity, as well as differing traditions of land use.
2  Forestry and related 
industries employ around 3.4 million people with sales of around €350 billion;  only about 60% of 
annual forest (re-) growth is exploited.   
(ii) Common Agricultural Policy 
(a) Overview 
9. Since the last TPR of the EC, reforms of  its Common Agricultural Policy (CAP) have 
continued to enhance the market-orientation of the sugar, fruit and vegetable, and wine subsectors.  
Implementation of these reforms is ongoing.  Th e domestic support regimes for bananas and cotton 
have also been further reformed.  Furthermore,  the regulatory framework of the CAP has been 
simplified, and Bulgaria and Romania ha ve been integrated into the CAP.  
10. Reflecting the 2003 CAP reforms, centered on th e move towards the Single Payment Scheme, 
the share of support that is less trade-distorting (production not required) increased from 1% of the 
total producer support estimate (PSE)  in 2004 to 33% in 2007, i.e. from €1.4 billion to €32.4 billion, 
according to the OECD.3   The "decoupled" payments to producers under the Single Payment Scheme 
and the Single Area Payment Scheme4, classified as Green Box support by the EC, represented over 
                                                      
 2 Eurostat (2008a). 
 3 The PSE is an indicator of the annual monetary value of gross transfers from consumers and 
taxpayers to agricultural producers, measured at the fa rm-gate level, arising from all policy measures that 
support agriculture.  
4 A simplified scheme applied in 10 of the 12 new Member States.   WT/TPR/S/214/Rev.1 Trade Policy Review 
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80% of the direct aids under the European Agricultu ral Guarantee Fund (EAGF) in 2007 (Table IV.5).  
For a number of products, coupled support was main tained, albeit at reduced levels.  For a limited 
number of products, new produc tion-limiting direct payments replaced coupled support.5  These 
payments represent the remaining share of the EC's direct aids. 
11. Support tied to the production of specific commodities, as measured by the OECD's Single 
Commodity Transfers (SCTs), was close to zero for common wheat, barley, oats, oilseeds, and eggs in 
2007, but as high as 40-50% of the respective producer  revenues for sugar and meat, except pigmeat.6  
Price support has declined significantly in the EC, from 86% of the total PSE in 1986-88 to 36% 
in 2007.  Nevertheless, for maize, sugar, and meat, price support makes up most of the SCTs 
(80-100%).7 
12. Overall, the PSE of the EC declined further during the review period to 26% of the total 
production value in 2007, as a result of the rise of the world market prices for agricultural products 
and policy reforms.  The level of support in the EC  is still above the OECD average (Table IV.3).  
The implicit tax on consumers, as measured by th e consumer support estimate (CSE), declined from 
- 37% in 1986-88 to -10% in 2007, reflecting th e CAP reforms, away from transfers paid by 
consumers (price support) to budgetary payments.8 
Table IV.3 
Transfers associated with agricultural policies in the EC, 1986-88 and 2005-07a 
 1986-88 2005-07 2005 2006 
2007 b 
Total Producer Support Estimate (PSE) 
(€ million) (%)
c 89,534 
40 102,482 
29 105,264 
32 104,066 
31 98,114 
26 
Total Consumer Support Estimate (CSE) (€ million) (%)
d -67,886 
-37 -46,871 
-14 -43,936 
-16 -43,497 
-14 -33,445 
-10 
Total Support Estimate (TSE)e 
(€ million) (% of GDP) 104,804 
2.69 117,515 
1.02 121,142 
1.11 119,372 
1.04 112,030 
0.91 
Memo item: 
TSE (average  of  OECD countries) 
(%) of GDP  
2.49  
0.97  
1.05  
0.97  
0.89 
a EC-12 for 1986-88; EC-25 from 2005; EC-27 in 2007. 
b Provisional. c PSE as a percentage of total value of production (valued at dome stic producer prices), adjusted to include direct payments an d to 
 exclude levies on production. 
d CSE as a percentage of total value of cons umption (valued at domestic producer prices). 
e TSE is the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that suppor t 
agriculture, net of the  associated budgetary receipts, regard less of their objectives and imp acts on farm production and incom e, 
or consumption of farm products. 
Source : OECD (2008), Agricultural Policies in OECD Countries at a Glance,  Paris.  
                                                      
 5 Payments based on output or on current areas/animal numbers are provided to, inter alia , durum 
wheat, rice, sugar, cotton, protein crop s (peas, field beans, lupins, starch), potatoes, livestock (bovine animals, 
sheep and goats), milk, olives, nuts, wine, raisins, seeds, tobacco, hops, and bio-fuel crops (OECD online 
information.  Viewed at:  http://www.oecd.org/dataoecd/59/26/40958473.xls). 
 6 The OECD has adopted a new PSE classification:  the total PSE is no longer broken down into 
commodity PSEs but disaggregated into four categories reflecting the flexibility given to farmers' production decisions within the various policy meas ures.  One of the four categories, the SCT, is defined as the annual 
monetary value of gross transfers from policies linked to the production of a single commodity such that the 
farmer must produce the designated commodity in order to  receive the transfer. This  includes broader policies 
where payments are specified on a per- commodity basis.  See OECD (2008a). 
 
7 OECD online information. Viewed at: h ttp://www.oecd.org/dataoecd/59/26/40958473.xls. 
 8 The CSE is an indicator of the annual monetary value of gross transfers from (to) consumers of 
agricultural commodities, measured at the farm-gate, aris ing from all policy measures that support agriculture. European Communities WT/TPR/S/214/Rev.1 
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13. CAP expenditures on agriculture and rural deve lopment amounted to €52 billion in 2007 and 
are estimated at €54 billion for the EC-27 in 2008.9  Expenditure is channelled mainly through the 
European Agricultural Guarantee Fund (EAGF) a nd the European Agricultural Fund for Rural 
Development (EAFRD), which are administered by the European Commission and Member States, 
and are monitored by the European Court of Audito rs.  France, the largest agricultural producer, also 
receives the largest share of th e combined EAGF and EAFRD assistance, followed by Germany, 
Spain and Italy (Table IV.4 and Table III.12).10  Direct payments under the Single Payment Scheme 
and the Single Area Payment Scheme accounted fo r 58% of the agricultural expenditures (EAGF and 
EAFRD combined) (Table IV.5). Other large expenditure  items were direct aids for arable crops, beef 
and veal, and rural development.11 
Table IV.4 
EAGF and EAFRD expenditures  by EC Member State, 2007 
 
EAGF  
(€ million) EAFRD 
(€ million) EAGF + EAFRD 
(€ million) Share in total 
EAGF + EAFRD 
(%) 
Austria 746.8 628.2 1,375.3 2.7 
Belgium 769.2 64.0 833.2 1.6 
Bulgaria 0.2 .. 0.2 0.0 
Cyprus 27.5 26.7 54.2 0.1 
Czech Republic 351. 6 396.6 748.2 1.4 
Denmark 1,083.5 .. 1,083.5 2.1 
Estonia 38.4 95.6 134.0 0.3 
Finland 585.8 332.3 918.1 1.8 
France 9,172.4 914.0 10,086.4 19.5 
Germany 5,646.2 1,185.0 6,831.2 13.2 
Greece 2,681.0 461. 4 3,142.4 6.1 
Hungary 473.2 570.8 1,044.0 2.0 
Ireland 1,319.8 373.7 1,693.5 3.3 
Italy 4,804.1 660.8 5,465.0 10.6 
Latvia 54.8 .. 54.8 0.1 
Lithuania 168.2 261.0 429.1 0.8 
Luxembourg 36.8 14.4 51.2 0.1 
Malta 2.0 .. 2.0 0.0 
Netherlands 1,110.2 70.5 1,180.8 2.3 
Poland 1,209.5 1,989.7 3,199.2 6.2 
Portugal 705.1 535.5 1,240.6 2.4 
Romania 6.9 .. 6.9 0.0 
Slovak Republic 157.6 303.2 460.8 0.9 
Slovenia 49.0 149.5 198.6 0.4 
Spain 5,874.9 15.8 5,890.7 11.4 
Sweden 758.9 292.1 1,051.0 2.0 
United Kingdom 3,950.8 172.5 4,123.3 8.0 
EC-27 41,784.1 9,513.4 51,297.5 99.3 
Communitya 336.7 9.2 345.9 0.7 
Total expenditureb 42,120.9 9,522.5 51,643.4 100 
.. Not available. 
a Direct expenditure made by the Commission (EAGF) and Technical Assistance EAFRD. 
b EAGF. An amount of €551.4 million, paid on the basis of the assigned re venue foreseen in Article 11 of Regulati on 320/2006 
(Temporary restructuring amounts in the suga r sector) is not included in the total. 
Source: European Commission, DG Agriculture and Rural Development,  
                                                      
 9 European Commission online information.  Viewed at: http://ec.europa.eu/agriculture/agrista/2007/ 
table_en/en34.htm.  
10 The last notification regarding domestic support measures submitted by the EC concerns the 
marketing years 2002/03 and 2003/04 (WTO document G/AG/ N/EEC/53, 8 December 2006). 
 11 Regulation 259/2008, 18 March 2008 sets out the rules regarding the publication of information on 
the beneficiaries of the EAGF and the EAFRD.  WT/TPR/S/214/Rev.1 Trade Policy Review 
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Table IV.5 
Expenditures by the EAGF, 2007 
(€ million) 
Sector Total 
expenditure Export 
refunds Storage Direct aids Other 
intervention 
Decoupled direct aids, of which: 30,369.1 .. .. 30,639.1 .. 
     SPS 28,119.3 .. .. 28,119.3 ..  
     SAPS 2,083.0 .. .. 2,083.0 ..  
     Separate sugar payment 166.7 .. .. 166.7 .. 
Other direct aids 6,260.8 .. .. 6,260.8 .. 
Additional amounts of aid 434.0 .. .. 434.0 .. 
Ancillary direct aidsa -18.1 .. .. -18.1 .. 
Cereals -133.3 41.8 -225.8 .. 50.7 
Sugar 455.5 509.3 -87.1 .. 33.2 
Olive oil 64.4 0.2 .. .. 64.2 
Dried fodder  154.1 .. .. .. 154.1 
Textile plants 20.0 .. 0.6 .. 19.5 
Fruit and vegetables 1,249.9 21.7 0.4 .. 1,227.7 
Products of the wine-growing sector 1,453.1 14.0 242.2 .. 1,196.9 
Tobacco 7.6 .. .. .. 7.6 
Rice -0.7 0.1 -0.8 .. .. 
Milk and milk products 638.2 513.4 -36.2 .. 161.0 
Beef and veal 98.3 46.2 0.0 .. 52.0 
Sheep meat and goat meat 0.0 .. .. .. 0.0 
Pig meat, eggs and poultry meat 173.8 111.2 .. .. 62.7 
Fishery products 25.1 .. .. .. 25.1 
Non-Annex I products 185.2 185.2 .. .. .. 
Food programmes 249.2 1.6 .. .. 247.6 
POSEI  201.2 .. .. .. 201.2 
Rural development -26.8 .. .. .. -26.8 
Policy strategy and coor dination 36.2 .. .. .. 36.2 
Audit of agricultural expenditure -93.8 .. .. .. -93.8 
Settlement of disputes 0.0 .. .. .. 0.0 
Promotion and information measures 50.6 .. .. .. 50.6 
Veterinary and plant-health measures 260.3 ..  .. .. 260.3 
Other measures/other products 6.9 .. .. .. 6.9 
Total EAGF expenditure 42,120.9 1,444.7 -106.7 37,045.8 3,737.1 
Sugar Restructuring Fundb 551.4 .. .. .. .. 
Total 2007 expenditure 42,672.3 .. .. .. .. 
.. Not available. 
a Outstanding balances, small producers, agrimonetary aids, etc. 
b Payments made on the basis of the assigned revenue foreseen in Article  11 of Regulation 320/2006 (Temporary 
 restructuring amounts in the sugar sector). 
Note: SPS:  Single Payment Scheme;  SAPS:  Single Area Payment Scheme; and POSEI: Programme d'options 
 spécifiques à l'èloignement et l'insularité  (Specific Options for Remotene ss and Insularity Programme). 
Source: European Commission, DG Agriculture. 
14. The EC's commitments with respect to agri cultural market access, domestic support and 
export subsidies to reflect the enlargement from 12 to  27 Member States have not yet been formally 
agreed in the WTO and consolidated in the EC's Schedule.  According to the EC's latest export 
subsidy notification for the marketing years 2005/06 and 2006/07, export subsidies granted to each of 
the 20 product groups remained below their r espective volume and outlay commitment levels.12  
Notified export subsidies amounted to €1.92 billion in 2005/0613 and €1.46 in 2006/07 (down from 
€2.63 billion in 2004/05).  About one third of the to tal export outlays in 2006/07 were granted to 
sugar; and another third to dairy products.    
                                                      
 12 Subsidized exports as notified by the EC are for the EC-25 before 1 January 2007 and EC-27 after 
January 2007.  The export subsidy commitment levels in 2005/06 reflect the commitments in the (non-certified) EC-15 schedule;  for 2006/07 the EC has notified new commitment levels for the EC-25 (not yet certified by the 
WTO).  See WTO document G/AG/N/EEC/57, 25 November 2008. 
 
13 Subsidized exports of sugar of ACP or Indian origin are included as from 22 May 2006.  See WTO 
document G/AG/N/EEC/57, 25 November 2008. European Communities WT/TPR/S/214/Rev.1 
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15. Member States enjoy a considerable degree of  flexibility, within the framework of EC 
guidelines, to adopt rural development measures best suited to their needs:  there is a "menu" to 
choose from approximately 40 support measures, such as agri-environmental measures, early retirement schemes, afforestation or payments  to assist farmers in least-favoured areas.
14   National 
strategies and rural development programmes established by Member States are subject to approval 
by the European Commission.  Expenditures for rural developmen t under the EAGGF increased from 
€6.8 billion in 2005 to €7.7 billion in 2006, partly because direct payments were reduced and 
redirected to rural development ("modulation").  In 2007, a single instrument was established to 
finance rural development, the Eu ropean Agricultural Fund for Rural Development (EAFRD), with a 
budget of €90.8 billion for the peri od 2007-13.  Funding shares are allocated to the three thematic 
"axes" (priorities) of the new rural development polic y;  this is complemented by assistance under the 
"LEADER approach".15 
16. Forestry policy falls within the competence of Member States.  The Standing Forestry 
Committee represents forestry administrati ons of the Member States which act as, inter alia , 
consultation forum for the development of forestry -related measures in the framework of Community 
policies on rural development and the environment.  The EC's rural development strategy provides for 
the main Community support for the forestry subsecto r.  Under the EC guidelines for state aid in the 
forestry subsector, support may be approved for eco logical, protective (phytosanitary measures), and 
recreational functions;  national aid for afforesta tion campaigns and establishment of agri-forestry 
systems may also be authorized.16 
17. The EC maintains tariffs quotas under the CA P and in accordance with its commitments 
under the WTO Agreement on Agriculture (Chapter III(2)(ii)).17  Using ISIC (Revision 2), the simple 
average MFN tariff on agriculture, hunting, forestry , and fishing is 9.3%, with rates ranging up to 
139.6% (Table AIV.1). In general, tariffs are low on agricultural products without competing 
production in the EC (e.g. coffee, tea, spices), but are considerably higher on some primary and 
processed agricultural products (Table AIII.1).  Procedures for out-of-quota and non-preferential 
imports (as well as exports) have been simplified,  through the reduction of the number of product 
categories requiring import licences (from around 500 at  HS 8-digit tariff line level to 65, since the 
marketing year 2008/09); export licences are now required for 43 product categories.18  As a result, 
administrative and transaction costs are reduc ed.  SPS measures have been strengthened 
(Chapter III (2)(viii)(b)). 
                                                      
 14 The general framework and eligible measures are set out in Council Regulation (EC) No. 1698/2005, 
20 September 2005. 
 15 The three axes of the EC's rural development strategy are (i) improving the competitiveness of 
agriculture and forestry by supporting restructuring, development, and innovation; (ii) improving the 
environment and countryside by supporting land managemen t;  and (iii) improving the quality of life in rural 
areas and encouraging diversification of economic activ ity.  This is complemented by the LEADER initiative 
for assisting small-scale projects in rural communities through a bottom-up approach.  See Council Decision of 
20 February 2006 on Community strategic guidelines for rural development, OJ L 55/20, 25 February 2006. 
 16 "Community Guidelines for State Aid in the Agriculture and Forestry Sector 2007-2013" 
OJ C 319/1, 27 December 2006. Ireland's Afforesta tion Grant and Premium Scheme, which complements its 
Rural Development Programme 2007-13, was approved in 20 07; Ireland has the second lowest rate of forest 
cover in the EC. See Europa Press Release 1P/07/1316, 12 September 2007. Viewed at: http://europa.eu/rapid/ 
pressReleasesAction.do?reference=IP/07/1316&format=HTML&aged=1&language=EN&guiLanguage=en. 
 17 The latest EC notification concerning tariff quota utilization, provided to the WTO Committee on 
Agriculture, refers to marketing year 2002/03 (WTO document G/AG/N/EEC/48, 27 February 2004).   
 18 Commission Regulation (EC) No. 514/2008, OJ L 150, 10 June 2008.  For a number of products, the 
import licensing requirement is waived for small consignments up to specified ceilings; the waiver does not apply to imports under tariff quota and preferential imports. WT/TPR/S/214/Rev.1 Trade Policy Review 
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18. With the objective of streamlining the legal framework of the CAP, the EC has adopted a 
comprehensive Common Market Organisation regula tion (Single CMO Regulation) that amalgamates 
in 204 articles the hitherto separate 21 CMOs.19  While it is not a substantive reform, as such, the 
Single CMO Regulation contains chapters on market  intervention, marketing and production, trade 
with third countries, and competition;  it includes ma rket measures for agricultural products that have 
not been subject to full-fledged CMOs (silkworms, et hyl alcohol of agricultura l origin, and apiculture 
products).20  The new regulation entered into force on 1 January 2008, and the CMO management 
committees have been replaced by a single management committee. 
19. In November 2008, the Council of Ministers agreed on proposals regarding further 
agricultural reforms (the Health Check of the CAP).21  The new measures under the Health Check are 
aimed at, inter alia , increasing the market orientation of the agriculture sector and responding to new 
challenges, such as climate change.  The measu res concern three main areas:  CAP market 
instruments (mandatory set-aside of land; the in tervention system for cereals, pig meat, and dairy 
products; and milk quotas), rural development policy, and the Single Payment Scheme.  The 
remaining coupled payments maintained by some Members will be decoupled and moved into the 
Single Payment Scheme, with the exception of th e suckler cow, goat, and sheep premiums, where 
Member States may maintain current levels of coupl ed support.  According to the Commission, this 
will increase the level of decoupled support as a percen tage of all direct payments to over 91.4%.  
20. Under the current "cross-compliance" rules, ai d to farmers is linked to the respect of 
environmental, animal welfare, and food quality standards; in case of non-compliance, farmers face 
reductions in their support.  As a result of the Health Check, these rules will be simplified, by 
withdrawing standards that are not relevant or li nked to farmer responsibility; new requirements that 
are related to, inter alia , water management will also be introduced. 
21. Currently, Member States applying the Single Paym ent Scheme may retain up to 10% of their 
national budget ceilings for direct payments a nd use them for environmental measures or for 
improving the quality and marketing of agricultural produc ts in the same subsector.  As a result of the 
Health Check, this possibility will become more flexib le. The funds no longer have to be spent in the 
same subsector (for example, cereals); they may be used to help farmers specializing in the dairy, 
beef, sheep, goat meat, and rice subsectors in disadva ntaged or environmentally sensitive areas; they 
may also be used to support risk management measures, such as insura nce schemes for natural 
disasters and mutual funds for animal diseases. 
22. Currently, all farmers receiving more than €5,000 per year in direct aid have their payments 
reduced by 5% and these released funds are transf erred to the rural development budget (modulation).  
Under the Health Check, this rate will be increased to 10% by 2012.  An additional cut of 4% will be 
made on payments above €300,000 per year. The fu nding released this way may be used by Member 
States to reinforce, inter alia , programmes for climate change, re newable energy, water management, 
biodiversity, and the measure to mitigate the impact  of phasing out the supply management system for 
milk.22   
                                                      
 19 Council Regulation (EC) No. 1234/2007, 22 October 2007, as last amended by Council Regulation 
(EC) No. 361/2008, OJ L 121, 7 May 2008. 
 20 The competition rules, inter alia , prohibit national price equalization schemes, as well as price- and 
volume-related state aids (Article 181 of the Single CMO Regulation).  
21 Europa Press Release IP/08/1749, 20 November 2 008.  Viewed at:  http://europa.eu/rapid/pressRelea 
sesAction.do?reference=IP/08/1749&format=HTML&aged=0&language=EN&guiLanguage=en.  
 22 Investment aid for young farmers under rural de velopment programmes will be increased from 
€55,000 to €70,000.   European Communities WT/TPR/S/214/Rev.1 
 Page 103 
 
 
(b) Policies on selected product groups 
Cereals  
23. Over half of the arable land in the EC-27 is cultivated with cereals (some 55.3 million 
hectares in 2007/08), which contribute about €45.7 billi on or 13% to total agricultural output in value.  
France is the leading cereal producer with over 20% of the EC harvest, followed by Germany, Poland, 
and Spain.  Despite a surge in prices, EC-27 production is expected to be modest in 2007/08 
(258.4 million tonnes).  Traditionally a net-exporter of cereals, the EC became a net-importer in 2007/08.
23  About 60% of EC-27 supplies are used as feed for livestock; cereals also provide major 
inputs for an expanding EC food-and-drink industr y.  Ethanol production based on cereals is still 
marginal (less than 2% of cereal production and consumption).24 
24. The EC-27's share in global rice production (ar ound 2.7 million tonnes) and consumption is 
less than 1%.  Italy and Spain are the most important among the few rice-producing Member States.  Consumption of rice is increasing; the EC is a net-importer of rice with a self-sufficiency ratio of 
about 66% (EC-25 in 2005/06).   
25. Key policy instruments (obligatory set-aside of land and, for some cereal s, export subsidies) 
have been suspended because of the relatively hi gh international market prices.  The market 
intervention system (to remove excess production fr om the market when prices decline below the 
intervention price), covers wheat, durum wheat, barl ey, sorghum, maize, and paddy rice (Table IV.6).  
Public intervention stocks declined from 14 million tonnes (including 5.6 million of maize) at the end 
of the 2005/06 marketing year to 2.4 million tonnes (m ainly maize) one year later.  From the 2009/10 
marketing year, intervention purchases of maize will be  suspended, which is expected to result in 
savings of €617.8 million over 2008-14.  Meanwhile, al most all remaining intervention stocks of 
cereals have been sold.  Under the Health Check, intervention purchases will be suspended for barley 
and sorghum.  For wheat, interv ention purchases will be possible dur ing the intervention period at a 
price of €101.31/tonne for up to 3 million tonnes.  
26. The suspension of obligatory set-aside of land,  which affects some 3.8 million hectares of 
arable land, is expected to lead  to an increase of th e cereal area by 1.6-2. 9 million hectares and of 
production by at least 10 million tonnes in 2007/08, as some producers are expected to switch from the production of oilseeds on set-aside la nd, to other crops, particularly cereals.
25  The set-aside 
requirement, which was already suspended, h as been abolished under the Health Check.  
27. MFN tariffs on all cereals average 49.4%, with rates ranging up to 138.2% (Table AIII.1).  
Tariffs on common wheat, durum wheat, rye, maiz e, sorghum, millet, buckwheat were suspended 
until 30 June 2009.  About two thirds  of total EC rice imports take place under preferential conditions.  
Imports of Basmati rice are subject to special rules and controls for determining their origin.26   
                                                      
 23 The main export destinations for cereals and cer eal preparations in 2007 were Saudi Arabia and 
Algeria; the main import origin was Brazil. Eurostat online information.  Viewed at http://epp.eurostat.ec. 
europa.eu/cache/ITY_OFFP UB/KS-AR-08-006/EN/K S-AR-08-006-EN.PDF. 
 24 The use of cereals of EC origin for ethanol increased from 0.7 million tonnes in 2004 to 3.5 million 
tonnes in 2006, but is expected to decline to 2.0 million tonnes in 2007/08 (about 0.6 million tonnes of ethanol) 
due to higher cereal prices and ethanol imports.  European Commission online information.  Viewed at: 
http://ec.europa.eu/agriculture/bioenergy/index_en.htm.  
25 Prior to its suspension, the obligatory set-aside ra te was 10%.  In the new Member States (Poland, 
Czech Republic, Slovak Republic, Hung ary, Lithuania, Latvia, Estonia,  Cyprus, Bulgaria and Romania), 
farmers have been exempted from  the obligation of set-aside.  
 26 Commission Regulation (EC) No. 972/2006, 29 June 2006. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 104 
 
 
Table IV.6 
Reference prices for products subj ect to intervention measures, 2008 
Product  Reference price Intervention price 
Cerealsa €101.31 per tonne: increased by: €0.46 per tonne in November, €0.92 in 
December, €1.38 in January, €1.84 in February, €2.30 in March, €2.76 in April, €3.22 in May, €3.22 in June 
maize:  intervention volumes limited to 1.5 million 
tonnes in 2007/08 and 700,000 tonnes in 2008/09; zero as from 2009/10 Equal to the reference price 
Paddy ricea €150 per tonne: intervention limited to 75,000 to nnes per year Equal to the reference price 
Sugarb 
White sugar 
Raw sugar  
€541.5 per tonne:  
€404.4 per tonne: €448.8 per tonne: 
€335.2 per tonne:  
for marketing year 2008/2009 
as from marketing year 2009/2010 for marketing year 2008/2009 
as from marketing year 2009/2010  
80% of the reference price fixed 
for the marketing year following the marketing year during which 
the offer is lodged 
Beef and veal €1,560 per tonne: for carcasses of ma le bovine animals Safety-net intervention price 
Dairy products €246.39 per 100 kg:  
€169.80 per 100 kg: for butter 
for skimmed milk powder 90% of the reference price 
Equal to the reference price 
Pig meat €1,509.36 per tonne: for pig carcasses of  standard quality Fixed by the Commission for 
pig carcasses of standard 
quality;  may not be more than 
92% or less than 78% of the reference price 
a The reference prices for cereals and rice relate to the wholes ale stage for goods delivered to the warehouse, before unloadin g. 
b The prices apply to unpacked suga r, ex-factory of standard quality. 
Source : Council Regulation (EC) No. 1234/2007, as amended by Council Regulation (EC) No. 361/2008;  and Council 
Regulation (EC) 1784/2003. 
28. Cereal producers benefit from decoupled inco me support under the Single Payment Scheme, 
although some Member States (France and Spain) will retain 25% of their historical arable crops 
payments until 2010.  Farmers producing durum wheat in Italy, Greece, Spain,  France, Portugal, and 
Austria also receive crop-specific aid of €40/ha. Coupled payments for rice producers have been 
partly decoupled and integrated into the Single Paym ent Scheme; in Italy, Spain, France, Greece, and 
Portugal, rice producers are also supported through crop-specific aid.27 
Oilseeds and oils 
29. Oilseeds account for a relatively small share (2.2%) in the EC's aggregate agricultural 
production;  this share reaches 8% in Bulgaria and the Czech Republic.  The EC is a large net 
importer of oilseeds and related oils:  production and consumption of oilseeds are estimated at 
24 million and 48.7 million tonnes respectively in 2007/ 08.  The main oilseeds grown in the EC are 
rape, followed by sunflowers, and soybeans.  Ge rmany and France together accounted for around 60% 
of EC-27 rapeseed production in 2006.  MFN tariffs on oilseeds28 average 1.6%, with rates ranging up 
to 9.1% (an AVE) (Table AIII.1).  Imports of soybeans, the main imported oilseed, are duty-free. 
30. The main use of oilseeds by the EC is as feed  for livestock (primarily soybean and rapeseed 
meal), food (sunflower oil), and bio-fuel (mainly rap eseed oil).  Rape is the leading bio-fuel crop in 
the EC:  about 3.6 million hectares or 3-4% of arable land is cultivated with rape for bio-fuel production.  Total oilseed use for fuel is estimated at 9.2 million tonnes in 2007/08, twice the amount 
in 2004/05.  Since 1992, producers have been permit ted to grow crops for non-food use, such as rape, 
on set-aside land.  Bio-fuel crops grown outside set-aside land are supported with an "energy crop 
premium" of €45/ha (up to a maximu m of 2 million hectares for the EC  as whole).  Th is premium will 
be abolished under the Health Check as from 2010. 
                                                     
 
 27 The aid ranges from €126.075 to €563.25 per hect are, subject to national base areas (ceilings).   
 28 Oilseeds and oleaginous fruit; miscellaneous grains, seeds and fruit, industri al or medicinal plants; 
straw and fodder.  European Communities WT/TPR/S/214/Rev.1 
 Page 105 
 
 
Sugar and ethyl alcohol 
31. The EC is a major player on the world sugar mark ets.  It has been th e largest producer after 
Brazil and India with a 12% share of world sugar production, and since 2006/07 has turned into a net-importer of sugar (raw sugar equivalents) , following the reform of the sugar CMO.
29  France, 
Germany, and Poland account for around 60% of  the EC's sugar production (Table IV.7). 
Table IV.7 
Selected sugar indicators, 2005-08  
 
Production 
('000 tonnes) Yield 
(tonnes/hectare) Share in 
production 
2007/08  
 2005/06 2006/07 2007/08 2007/08 (%) 
Austria 406 414  463  10.91  2.7 
Belgium 854 863 880 10.26 5.1 
Bulgaria .. .. 7 3.50 0.04 
Czech Republic 477 509 468 8.42 2.7 
Denmark 466 352 382 12.2 2.2 
Finland 146 127  84 5.23  0.5 
France 4,007 4,708  4,680 12.46 27.2 
Germany 3.898 3,220 4,110 10.12 23.9 
Greece 306 185 102 7.27 0.6 
Hungary 387 327 297 7.77 1.7 
Italy 1,562 627 660 7.34 3.8 
Ireland 200 0 0 ..  0 
Latvia 67 61 0 ..  0 
Lithuania 108 98 91 5.53 0.5 
Netherlands 911 865 860 10.49 5.0 
Poland 1,800 1,628 1,612 7.06 9.4 
Portugal 68 38 13 9.47 0.1 
Romania ..  .. 108 4.27 0.6 
Slovakia 211 184 148 7.39 0.9 
Slovenia 47 46 0 .. 0 
Spain 1,054 1,007 772  10.02  4.5 
Sweden 379 340 312 7.71 1.8 
United Kingdom 1,300 1,100 1,150 10.75 6.7 
ECa 18,677  16,701  17,198 9.76 100.0 
      
Memo item: EC-27 sugar quotaa 17,441 16,908 16,599 .. .. 
.. Not available. 
a EC-25 for 2005/06 and 2006/07;  EC-27 for 2007/08. 
Source:  European Commission online information.  Viewed at: h ttp://ec.europa/eu/agriculture/agrista/2007/table_en/4311. 
pdf. 
32. The principal trade policy instruments of the CMO for sugar are tariffs, tariff quotas, and 
preferential arrangements;  the special safeguard (SSG);  suppl y management (production quotas); 
institutional prices, and the intervention system;  as well as export subsidies for sugar and processed 
products.  On 1 July 2006, a new s ugar regime came into force to address an unsustainable structural 
surplus of sugar, exported with subsidies.  The ne w sugar regime (subsequently integrated into the 
single CMO) runs until 2014/15.30  The reform of the CMO for sugar is implemented over a period of 
four years (marketing years 2006/07 to 2009/10), during which institutional prices and production 
quotas are reduced;  the price cuts are partially compensated through direct (decoupled) payments.31   
                                                      
 29 European Commission online information.  Viewed at: http://ec.europa.eu/agriculture/agrista/2007/ta 
ble_en/en43.htm.  
30 Council Regulation (EC) No. 318/2006, subseq uently embedded into Council Regulation (EC) 
No. 1234/2007.  
 31 The direct payments for sugar b eet growers are compensating for 64 .2% of the revenue loss from the 
price cuts; they have become part of the Single Payment Scheme. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 106 
 
 
According to the Commission, sin ce October 2008, no export refunds ha ve been granted for sugar and 
sugar incorporated in processed products. 
33. Institutional prices are fixed as reference prices for raw and white sugar (Table IV.6), and a 
minimum price for sugar beet.  The minimum price is the price to be paid by manufacturers for sugar beet within production quotas;  it is being reduced in four stages to €26,29/tonne in 2009/10.  The intervention price for (white and raw) sugar has b een replaced by a reference price because the public 
intervention system will be abolished after a four-y ear phase-out period.  During the transition period, 
public intervention purchases of (white and raw) sugar are triggered at 80% of the reference price of 
the subsequent marketing year
32;  the reference prices for sugar are reduced by 36% over the four-year 
period 2006/07-2009/10.   
34. The "A quota" and the "B quota" have been me rged into one sugar production quota, and the 
supply management system has been extended unt il the end of the 2014/15 marketing year.  A 
voluntary restructuring (incentive) scheme until 2010/11 has been established to encourage less 
competitive manufacturers to leave the subsector a nd producers to return their production quotas for 
sugar, as well as for isoglucose and inulin syrup.33  The outermost regions of the EC (e.g. French 
overseas departments) are not covered by the scheme.  The restructuring fund is financed through a levy charged on all sugar, isoglucose, a nd inulin syrup production within quota.
34  Additional 
restructuring incentives were introduced in September 2007.35 
35. At the end of the four-year restructuring process, the EC sugar quota is to be reduced to about 
12.5 million tonnes (a total cut of about 6 million to nnes).  Before the reforms, sugar was produced 
throughout the EC, with the exception of Cyprus, Es tonia, Luxembourg, and Ma lta:  Bulgaria, Ireland, 
Latvia, and Slovenia have since abandoned sugar pr oduction and returned their sugar quotas.  The 
restructuring process has also led to the closing of  75 sugar factories (over one third of the total 
number) and the loss of 10,000 jobs directly and about 50,000 indirectly.36  Moreover, the production 
of inulin syrup has stopped in the EC since France, Belgiu m, and the Netherlands have returned their 
production quotas (a total of 321,000 tonnes).  The EC isoglucose production quota shows a net 
increase compared with 2005/06.  Over all, the reforms have contributed to the adjustment of the EC's 
sugar industry on the basis of its Members' comp arative advantages.  Nonetheless, sugar production 
continues in Member States with comparatively lo w average yields, such as Finland and Lithuania 
(Table IV.7).  Trading of production quotas between Member States is not permitted. 
36. The sugar sector continues to be highly supporte d.  Sugar prices in the EC have been about 
three times higher than the world market price.37  Imports of sugar and sugar products are subject to 
tariff quotas.  MFN tariffs on sugar and sugar pro ducts average 35.7%, with rates ranging up to 
604.3% (Table AIII.1).  Additional import duties are frequently applied on out-of-quota imports 
(price-based SSG).   
                                                      
 32 Intervention purchases are limited to 600,000 tonnes of sugar per marketing year; no sugar was 
offered for intervention in 2007. 
 33 The incentives amount to €730/tonne in 2006/07 and 2007/08;  €625/tonne in 2008/09, and 
€520/tonne in 2010/11. 
 34 The restructuring levies on sugar are €126.40 per tonne in 2006/07,  €173.80 per tonne in 2007/08,  
€113.30 per tonne in 2008/09 (and zero in 2009/10).  The reference price for white sugar net of restructuring levies, is thus €428.20 per tonne in 2008/09 (see Table IV.6).    
 
35 The incentives include an additional payment of €237.5/t for quota retirement in the 2008/09 or 
2009/10 marketing year.    
36 European Federation of Food, Agriculture and Tour ism Trade Unions online in formation. Viewed at: 
http://www.effat.org/files/1209980076_doc_FBT-08- 048ED%20Resolution%20on%20Sugar/20sector%20situa 
tion-EN.pdf.  
37 IMF online information. Viewed at: http://www.imf.org/external/np/res/commod/table3.pdf. European Communities WT/TPR/S/214/Rev.1 
 Page 107 
 
 
37. Imports from the least devel oped countries, ACP countries, and India benefit from a 
guaranteed price, which is fixed by the EC each year38;  and preferential access is granted to certain 
countries.39  To mitigate the effect of EC price cuts on ACP countries with preferential access, 
€1.244 billion have been set aside for 2007-13.  The Sugar Protocol to the ACP-EC Cotonou 
Agreement (and a similar agreement concerning sugar imports from India) is to be terminated with 
effect from 1 October 2009, coinciding with furthe r liberalization of sugar imports by the EC from 
LDCs under the EBA initiative and under new trade arrangements for sugar, i.e. the Economic 
Partnership Agreements (EPA).  Access for ACP suga r to EC market will be fully liberalized as from 
1 October 2015.  From 1 October 2009 to 30 September 2015, sugar im ports from non-LDC ACP 
countries will be subject to a transitional safegua rd clause mechanism.  Duty-free access may be 
suspended for non-LDC ACP countries when two cond itions are met simultaneously:  (i) imports 
originating in all ACPs exceed 3.5 million tonnes,  and (ii) imports originating in non-LDC ACP 
countries exceed the following quantities:  1.38 million tonnes in the marketing year 2009/10; 1.45 million tonnes in the marketing year 2010/11;  and 1.60 million tonnes in the marketing years 
2011/12 to 2014/15. 
38. Sugar beet use for ethanol production is still ma rginal (estimated at about 0.8 million tonnes 
of sugar equivalents); sugar beet production for et hanol is no longer subject to quota.  Ethanol is 
mainly imported under two tariff lines for ethyl alcohol of a strength of more than 80%:  for 
undenatured alcohol (CN 2207 10 00), the applied impor t tariff is €19.2 per hl;  for denatured ethanol 
(CN 2207 20 00), the applied tariff is €10.2 per hl.  Germ any is authorized to grant aid to producers of 
ethyl alcohol of agricultural origin in the framework of the German Alcohol Monopoly (up to €110 million per year until the end of 2010). 
Livestock and meat 
39. The enlargement to 27 Member States has had a significant effect on EC sheep and goat meat 
production, increasing it by 7-9% in 2007.  The markets for livestock, including beef and veal, sheep meat, and poultry meat, remain amongst the most heavily protected subsectors in agriculture; pig meat is less protected.
40  Since 2003,  the EC has been a net importer of beef; in 2007, it also became a net 
importer of poultry meat.  Trade policy measures on livestock and meat include tariffs, market 
intervention, private storage, as well as export s ubsidies.  MFN tariffs on meat products average 
25.4%, with rates ranging up to 204.2% (Table AIV. 1).  Although the support for livestock has been 
decoupled and integrated into the Single Payment Scheme, payments linked to production continue to 
play an important role in some Member States, in particular the direct aids for suckler cows, ewes, 
and goats, as well as the slaughter premium for bovine animals.  Under the Health Check, intervention 
has been abolished for pig meat.  Export subsidies are provided for livestock and meat (including beef 
and veal, pig meat and poultry meat). 
                                                      
 38 From 1 July to 30 September 2009, the guaranteed prices are €448.8/tonne for raw sugar and 
€541.5/tonne for refined sugar.  From 1 October 2009, the guaranteed price for sugar imports from ACP and 
least developed countries will be 90% of the EC reference price fo r raw/refined sugar. 
 39 Under its pre-EPA arrangements with ACP countries and India, the EC allocates 1.3 million tonnes 
annually to ACP countries and 10,000 tonnes to India.  Under th e EBA initiative, duty- and quota-free access 
will be granted from 2009 onwards. In the meantime, pr eferential tariff quotas apply on raw cane sugar for 
refining: 149,213 tonnes in 2006/07, 171,594 tonnes in 2007/08, and 204,735 tonnes in 2008/09;  the related 
preferential tariffs will be reduced to zero by 1 July 2009.  Moreover, imports from Albania, Bosnia and 
Herzegovina, Croatia, Former Yugoslav Republic of Macedonia, Serbia, Montenegro, and Kosovo are subject to 
duty-free quotas totalling 380,000 tonnes per marketing year;  for Moldova, the duty-free quota is 15,000 tonnes 
in 2008, increasing to 34,000 in 2012.     
40 OECD (2008a). WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 108 
 
 
40. Strict SPS measures apply to animals and anim al products from both domestic and foreign 
origins (Chapter III (2)(viii)). 
Dairy products 
41. Milk is produced throughout the EC and is the leading product in EC agriculture in 
production value terms (€48.1 billion or 14% of the aggregate value of agricultural production in 
2007).  Dairy farming has even greater importance in Scandinavia, the Baltic states, the Czech 
Republic, and Luxemburg (20-34% of the total value of agricultural production).  Nonetheless, France, Germany, Italy, the Netherlands, Poland, and the United Kingdom account for more than 70% 
of the EC's milk production ( 147.2 million tonnes in 2007).    
42. The EC is a leading exporter of many dairy products, in particular cheese, with a 27% world 
market share for butter and 33% for cheese; the EC  is also a large importer of butter and cheese.
41  
Demand for cheese, which accounts for close to 40% of EC consumption, and fresh dairy products, 
are the main factors driving milk production in th e EC, which is constrained by production quotas.  
The new EC regulation on nutrition and health claims is likely to affect the marketing of functional 
dairy products.  In 2007, the market for drinking milk  was liberalized to allow the retail sale of milk 
with different fat contents, in addition to  skimmed, semi-skimmed, and whole milk.42   
43. In the light of high world market prices, expor t subsidies for dairy products were suspended 
for skimmed milk powder (SMP) in June 2006, for whole milk powder (WMP) in February 2007, and for cheese and butter in June 2007.  However, in Ja nuary 2009, export subsidies were reintroduced for 
SMP, WMP, butter and cheese.  In April 2008, the EC  milk production quota was increased by 2% to 
142 million tonnes for the EC-27 (including 4 million tonnes for Bulgaria and Romania).  National 
production quotas may not be transf erred between Member States, although several have not filled 
their quotas in recent years and others have exceeded their quotas.  Overshooting of individual farm quotas is subject to a penalty (surplus levy) of €27.83 per 100 kg of milk.  The modalities for the 
transfer of production quotas vary between Member States.  While the price of milk quotas is market-determined in most Member States, a few Memb er States use administered prices. The supply 
management system for milk is due to expire.  Under the Health Check, the milk quotas will be 
increased by 1% each year between 2009/10 and 2013/14,  to soften the impact of the termination of 
the quota system by 31 March 2015.
43  In 2009/10 and 2010/11, EC Member States who exceed their 
milk quotas by more than 6% compared with the 2008/09 quota will have to pay a surplus levy 50% 
higher than the normal penalty. 
44. The EC maintains a number of schemes for the s ubsidized disposal of dairy products on the 
internal market.44  The subsidies for the industrial use of butter were suspended in April 2007, and the 
Commission has proposed that the scheme be abolis hed. The subsidies for the industrial use of 
skimmed milk and the feed use of SMP were reduc ed to zero in October 2006.  Intervention was not 
used in 2006-08 for SMP, nor for butter in 2007-08.  Private storage for SMP was abolished in 2007, 
while compulsory private storage for butter continued, with the aim of avoiding intervention during the peak production season.
45  Under the Health Check, interv ention purchases for butter have been 
                                                      
 41 European Commission (2008e). 
 42 Europa Press Release IP/07/195, 15 February 200 7.  Viewed at: http://europa.eu/rapid/pressReleases 
Action.do?reference=IP/07/195& format=HTML&aged=1&language= EN&guiLanguage=en.    
 43 For Italy, a 5% increase will be introduced in 2009/10. 
 44 These subsidies are for:  (i) the feed use of skimmed milk and skimmed milk powder;  (ii) the use of 
skimmed milk for casein and caseinates;  (iii) the industrial use of cream, bu tter, and concentrated butter;  and 
(iv) a school milk scheme.    
 45 The difference between the EC price for butter and the world market prices was about 30% at the end 
of 2007 (European Commission, 2007h, p. 8). European Communities WT/TPR/S/214/Rev.1 
 Page 109 
 
 
limited to 30,000 tonnes per year, and to 109,000 tonnes per year for SMP.  Direct payments to milk 
producers have been fully integrated into the Single Payment Scheme since 2007.   
45. MFN tariffs on dairy products average 32. 4%, with rates ranging up to 189.7% 
(Table AIV.1).  The tariffs are generally at a level that discourages out-of-quota imports.46    
Fruit and vegetables 
46. The fruit and vegetable subsector (excluding bana nas) is an important activity in the EC.  
Tomatoes, apples, oranges, carrots, onions and pears are the leading products;  Spain and Italy are by 
far the largest producers of fruit and vegetables (more than 50% of the total volume).47  The EC is the 
leading importer and second largest exporter of fruit and vegetables; its trade deficit, on average over 
the last three years, was more than €8 billion for fruit and €300 million for vegetables.48   
47. The CMO for fruit and vegetables was reformed on 1 January 2008 with the aim of, inter alia , 
integrating the subsector into the reformed 2003 CAP.49  Land cultivated with fruit and vegetables is 
eligible for direct payments under the Single Payment Scheme.50  For a transition period of five years, 
in some Member States, coupled payments (no longe r linked to production but to the cultivated area) 
are granted for strawberries and raspberries for pro cessing and, on an optional basis, for fresh figs, 
citrus fruit, table grapes, pears, peaches , nectarines, and certain types of plums.51   
48. Market intervention mechanisms to support prod ucer prices include "market withdrawals" and 
green harvesting/non-harvesting of crops (crisis prevention and management );  implementation of 
these instruments has been delegated to producer  organizations, with 50% co-financing by the 
Community and a budget limited to 0.5% of the value of the marketed production by each producer organization.  Fruit and vegetables not offered fo r sale on the market are made available for, inter 
alia, free distribution to schools, hospitals, and charita ble bodies; they may also be destroyed, distilled 
or used for non-food purposes.  Additional fi nancial support will be provided to producer 
organizations, to strengthen the competitive positi on of producers in the market-place. Export 
subsidies for fruit and vegetabl es have been abolished.   
49. Imports of fruit and vegetables are subject to tariff quotas (Chapter III (2)(ii)), with "per 
range" tariffs based on entry prices.
52  The entry price system is applied seasonally (i.e. some of the 
"per range" tariffs are seasonal), except for tomatoes , apples, lemons, cucumbers, and courgettes, on 
which it is applied year-round.  MFN tariffs average 10.0% on fruit53, with rates ranging up to 30.5%;  
and 13.5% on vegetables54, with rates ranging up to 168.4% (T able AIII.1).  Imports of fruit and 
                                                      
 46 European Commission (2007h), p. 5. 
 47 Eurostat (2008a). 
 48 Europa Press Release MEMO/07/28, 24 January 2 007.  Viewed at: http://europa.eu/rapid/pressRelea 
sesAction.do?reference=MEMO/07/28&format=HTML&aged=1&language=EN&guiLanguage=en. 
 49 The Single CMO Regulation was amended by Council Regulation (EC) No. 361/2008, OJ L 121, 
7 May 2008, in effect from 1 July 2008, to incorporate the reforms for fruit and vegetables. 
 50 The total amount transferred to the Single Payment Scheme is around €800 million.  
 51 Council Regulation (EC) No. 1182/2007, 26 September 2007. 
 52 The entry price system applies to imports of tomatoes, cucumbers (including for processing), 
artichokes, courgettes, sweet oranges, clementines, mandarins, lemons, table grapes, apples, pears, apricots, (sour) cherries, peaches, and plums (GEIE Agrosynergy  online information. Viewed at: http://ec.europa.eu/ 
agriculture/eval/reports/fruitveg/index_en.htm). 
 
53 Edible fruit and nuts, peel of citrus fruit or melons. 
 54 Edible vegetables and certain roots and tubers. WT/TPR/S/214/Rev.1 Trade Policy Review 
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vegetables are subject to the special safeguard  (SSG) under Article 5 of the WTO Agreement on 
Agriculture; the SSG covers imports under the entry price system.55     
50. Imports of fruit and vegetables are subject to  strict SPS measures.  Special conditions for 
imports of almonds from the United States were estab lished in 2007 due to high levels of aflatoxin.56   
51. In the banana subsector, the EC moved to a "tariff-only" regime  on 1 January 2008 by 
eliminating the preferential tariff quota of 775,000 tonnes at zero duty for ACP countries.57  The MFN 
tariff of €176 per tonne (applied since 1 January 2006) corresponds to an ad valorem  tariff equivalent 
estimated at 30.5%, based on total EC banana imports  in 2006-07;  this is high considering that the 
EC relies mainly on imports of bananas for cons umption (around 89% of banana consumption in 
2007).   In spite of the high import tariff, EC ba nana consumption increased  by 9.7% in 2006 (to 
4.37 million tonnes) and by 4% in 2007.  During the period under review, the EC 's banana regime was 
subject to WTO dispute settlement procedures.58 
52. EC bananas are mainly grown in the outermost  regions (Canary Islands, the French overseas 
departments of Guadeloupe and Martinique, the Az ores, and Madeira);  small quantities are also 
produced on the mainland of Portugal, Cyprus, and Greece.  The domestic support regime for bananas 
was reformed with effect from 1 January 2007.59  As a result, the aid provided to producers in the 
outermost regions is provided by Members States through the POSEI scheme.60  Aid in the other 
banana-producing regions of the EC  (compensatory aid scheme) has been decoupled and integrated 
into the Single Payment Scheme. 
Wine and alcohol 
53. The EC contributes about 60% to world wine pr oduction.  France, Italy, and Spain accounted 
for 80% of EC total production in 2007; Germany, Portugal, and Romania are also important wine 
producers.  Moreover, the EC is the largest consumer , exporter, and importer of wine:  over the last 
ten years, imports have increased by 10% per year  to 12 million hectolitres; export growth was much 
lower.  Wine consumption shows di verging trends in the EC:  it is decreasing in some regions of 
Southern Europe and increasing in some regi ons of Middle, Northern, and Eastern Europe.61  
54. The EC wine market has been suffering from chronic overproduction.  The distillation of 
wine into spirits and liqueur wines has traditionall y been the main instrument of surplus disposal, 
whereby distillers are partly compensated for the high  local raw material price they are obliged to pay 
                                                      
 55 According to EC notifications for 2002/03 to 2005/06, the volume-based SSG was made operational 
for a number of fruit and vegetables but was not used (WTO document G/AG/N/EEC/54, 14 February 2008). 
 56 Almonds and derived products are subject to 100% mandatory testing upon importation into the EC, 
unless the product was tested for aflatoxin in the United States, in which case testing is limited to approximately 
5% at the EC border (Commission Decision 2007/563/EC, OJ L 215, 18 August 2007). 
 57 The tariff quota was abolished when the EC had concluded economic partnership agreements with a 
number of ACP countries (Council Regulation No. 1528/2007, 20 December 2007).  See also WTO documents 
WT/DS27/AB/RW2/ECU and WT/DS27/AB/RW/USA, 26 November 2008. 
 58 On 26 November 2008, the WTO Appellate Body issued its report regarding the cases:  "European 
Communities - Regime for the Importation, Sale and Distribution of Bananas - Second Recourse to Article 21.5 
of the DSU by Ecuador", and "European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to Article 21.5 of the DSU by the United States".   
 
59 Council Regulation (EC) No. 20 13/2006, 19 December 2006. 
 60 Programme d'options spécifiques à l'èloignement et l'insularité (Specific Options for Remoteness and 
Insularity Programme).  The programme has become the main regulatory instrument for bananas in the 
outermost regions, and gives the Member States concerned the flexibility to support banana producers with 
additional funds of €278.8 million.    
61 Hoffmann (2008), p. 82. European Communities WT/TPR/S/214/Rev.1 
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in the form of a guaranteed producer price for wi ne.  In 2000-04, some 21 million hectolitres of wine 
per year (around 13% of production) were subsidized to make them  competitive for the production of 
alcoholic beverages, notably Brandy (8-12 m illion hl), Cognac (4.4 million hl), and Vermouth 
(2.2 million hl).62  A new CMO for wine entered into for ce in August 2008, with the objective of, 
inter alia , restoring market balance and increasing the competitiveness of EC wines vis-à-vis  "new 
world" wines.63  Two large distillation support programmes (potable alcohol distillation and "crisis" 
distillation) will be phased out by 2012.64  The distillation of by-products of winemaking remains 
obligatory, to avoid over-p ressing and a deterioration of wine qual ity;  the distillation is subsidized.  
The distillation subsidies for "dual-purpose" grape varieties to produce, inter alia , Cognac, and to 
remove a wine surplus in the Charentes region of  France, were abolished by the 2008 reform.  
55. In some wine areas, the natural alcoholic st rength may be increased by the addition of dry 
sugaring (chaptalization); in other areas, chaptaliza tion is prohibited and the natural alcoholic strength 
may be supplemented only by addition of concentrated  grape must (Italy, Greece, Spain, Portugal, and 
Cyprus).  In order to compensate for the higher price of the latter, Community support is being 
granted until 2012.  
56. As a result of the reforms, the wine subsector  has been integrated into the Single Payment 
Scheme.  Payments are allocated by the Community and Member States to wine producers 
participating in incentive schemes for permanen t abandonment of production (grubbing-up schemes).  
Moreover, in the 2007/08 marketing year, the EC provided about € 510 million for the restructuring 
and conversion of vineyards (var ietal conversion, relocation of vineyards, and improvements to 
vineyard management techniques).  The liberalization of the restrictive system of planting rights in the EC, which includes a ban on new vine plantings, is  to take effect by the end of 2015 at the 
Community level; Member States have the option of deferring the liberalization until the end of 2018. 
57. Applied MFN tariffs on imports of wine averag e 15.5%, with rates ranging up to 218.3%, and 
2.5% on alcoholic beverages
65, with rates ranging up to 39.8% on concentrated must (Table AIV.1).  
Imports of grape must, grape juice, as well as table grapes, are subject to "per range" tariffs based on 
the entry price system (see fruit and vegetable secti on above).  The preferential trade agreements with 
Australia, Switzerland-Liechtenstein, South Afri ca, Chile, Canada, and the United States cover 
specific matters of the wine subsector, such as oenological practices, labelling, geographical 
indications, and concessions.  Imports from Chile (2 .9 million hl, representing one third of EC wine 
imports) are currently duty free.  The labelli ng scheme for wine has been modified to, inter alia , 
allow, for both domestic and imported wines, the i ndication of the wine grape variety and vintage 
without a designation of origin or geographical indica tion.  The EC is also taking steps to enhance the 
marketing and promotion of its wines in third countries, through national support programmes with 
EC co-financing of expenditures.66 
58. As the result of the 2008 reform of the wi ne CMO, export subsidies for wine have been 
abolished.  However, in certain areas, the reform has failed to liberalize trade.  The EC continues to 
                                                      
 62 European Commission (2006d) , p. 45. 
 63 Council Regulation (EC) No. 479/2008, 29 April 2008. 
 64 Both "potable alcohol distillation" (distillation into  spirits and liqueur wines) and "crisis distillation" 
are voluntary programmes.  Crisis distillation is appl ied at the request of Memb er States to address a 
demonstrable deterioration of the market prices for table or quality wines.   
 65 Distillation of spirits and alcohol production. 
 66 Article 10 of Council Regulation (EC) No. 479/2008, 29 April 2008.  Eligible activities include 
participation in fairs and exhibitions, market studies, and advertisement. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 112 
 
 
apply a prohibition on the blending of its wines wi th imported wines, and on the use of imported 
grape must/juice and fresh grapes for wine-making in the EC.67  
(iii) Fisheries 
(a) Main features 
59. Fishery production in the EC-27 amounted to  6.9 million tonnes live weight in 2005, 
representing about 4% of world production.  D espite a 25% decline compared with 1995, EC 
production remains beyond sustainable levels (82% are from catches and the r est from aquaculture).  
Spain (14%), Denmark (14%), France (12%), and the United Kingdom (12%) account for over half of 
total EC production.68 
60. The EC's fishing fleet consisted of about 88,000 vessels in 2007;  Greece, Italy, and Spain had 
the largest fleets.  The capacity of the EC fishing fl eets has declined at an annual rate of 2-3% over the 
last 15 years in terms of numbers and tonnage, la rgely due to the EC policy to reduce overcapacity.69  
Nonetheless, the EC fleet capacity exceeds maximum su stainable catches by a factor of two to three, 
according to the European Commission.70  Over 80% of the EC fleet comprises small-scale coastal 
fishing boats.   
61. In 2007, the EC recorded a €14 billion trade deficit in fishery products, with imports of 
€16 billion and exports of €2.7 billion.71  Norway is the primary supp lier (20% of the EC fishery 
imports), while Japan, Russia, and China are the main destinations of EC fishery exports.  
(b) Common Fisheries Policy (CFP) 
62. Fishing rights in the EC are regulated through, inter alia , catch limits (Total Allowable 
Catches72), national catch quotas, the limitation of vessels' "days at sea" for certain fisheries, and 
various measures to limit fleet capacity.  The manage ment of these rights is within the competence of 
Member States and varies between them:  they may be granted to individual fishermen or producer 
organizations.  In a number of Member States, fishing rights are transferable among fishermen; in 
some cases, fishing rights are exchanged between Member States on a temporary basis.  
63. The EC's fishery management regime was reform ed in 2002 to ensure sustainable exploitation 
of resources;  recovery plans for a number of over-fished species (e.g. cod) were launched.73  
However, the European Commission estimates that 88% of the EC fish stocks remain at risk because 
of over-fishing:  Total Allowable Catches (TACs) have consistently been  set above scientists' 
recommendations, and the "days-at-sea" system to control fishing opportunities has proved to be ineffective because of derogations.  Proposals made  by the European Commission to modify the 
fisheries conservation policy, including a more flexib le approach for fixing TACs and replacing the 
                                                     
 
 67 Council Regulation (EC) No. 479/2008, 29 April 2008, Annex VI, paragraphs B.5 and C. 
 68 Eurostat (2007a). 
 69 European Commission (2007c). 
 70 European Commission online information. Viewed at: http://ec.europa.eu/fisheries/press_corner/pres 
s_releases/2008/com08_60_en.htm. 
 71 Exports are likely to be underestim ated because of incomplete data on transhipments of catches at 
sea to vessels of a different nationality, and la nding by fishing vessels in foreign ports. 
 72 TACs, as well as national quotas, are fixed annually by the Council of Fisheries Ministers for the 
Baltic Sea, the Black Sea, and the North-East Atlantic , including the North Sea;  for fisheries of deep sea 
species, TACs are fixed every two year s;  while fisheries in the Mediterranean are not managed through catch 
limits, except for bluefin tuna.    
 73 Council Regulation (EC) No. 2 371/2002, 20 December 2002 on th e conservation and sustainable 
exploitation of fisheries. European Communities WT/TPR/S/214/Rev.1 
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"days-at-sea" system through a "kilowatt- days" system, are pending.74  In September 2008, the 
European Commission initiated a full review of the CFP with the aim of overhauling the institutional 
framework of EC fisheries management.75  
64. According to the European Court of Auditors, th e EC's control and enforcement system of the 
Common Fisheries Policy is ineffective:  catch data  are unreliable and incomplete, as a result of which 
they are an inadequate basis for determining TACs and quotas; national inspection systems are 
insufficient to prevent and detect infringements of fishing rights;  and penalties for infringements do 
not have a deterrent effect.76  The Community Fisheries Control Agency, established in 2005, has the 
mandate of organizing coordinati on and cooperation between national control and inspection activities 
with the aim of:  assisting recovery of depleted st ocks;  fighting illegal, unregulated, a nd unreported 
(IUU) fishing activities;  and reducing discards.77 
65. On 1 January 2010, a new regulation is to enter in to force to prevent, deter, and eliminate all 
trade in fishery products in the EC deriving from IUU fishing in all waters, and the involvement of 
Community nationals in IUU ac tivities conducted under any flag.78  In order to achieve this goal, an 
EC catch certification scheme will be introduced to improve traceability of all marine fishery products 
traded with the Community (imports and exports), irr espective of means of transport, and at all stages 
of the production chain, from the fishing net to the plate.  
66. Under the EC fleet management policy, Member States are required to comply with a fleet 
entry/exit scheme applying to the capacity of their fleets, measured in terms of tonnage and engine 
power.79  Before a new vessel enters the national fleet, at least the same amount of fleet capacity must 
be withdrawn without public aid (entry-to-exit ratio of 1:1).80  Another rule is that capacity reductions 
financed with public aid are permanent;  they are deducted from the maximum fleet capacity of each Member State.  Member States may exceptionally authorize the rebuilding of 4% of the tonnage decommissioned with public funds, in order to improve safety, hygiene, working conditions and 
product quality on board, provided this does not result in increased ability of the vessels to catch fish 
                                                     
 
 74 Europa Press Release, MEMO/08/353, 30 May 2 008. Viewed at: http://europa.eu/rapid/pressRelease 
sAction.do?reference=MEMO/08/353&format=H TML&aged=0&language=EN&guiLanguage=en. 
 75 European Commission online information. Viewed at: http://ec.europa.eu/fisheries/press_corner/pres 
s_releases/2008/com08_60_en.htm.  
76 European Court of Auditors, Special Report No. 7/2007 on the control, inspection and sanction 
systems regarding to the rules on conservation of Community fisheries resources together with the 
Commission's replies, OJ C 317/1, 28 December 2007.  Viewed at: http://eca. europa.eu/portal/p ls/portal/docs/1/ 
673627.PDF.  In a ruling of 12 July 2005, the European Court of Justice ordered France to pay €20 million plus 
a periodic six-month penalty of €57.8 million running from that day, for failing to comply with a 1991 Court 
ruling on serious failings in its enforcement of fisheries rules.  The European Commission’s task was to assess 
whether, at the end of the six-month period (i.e. on 12 January 2006), France had fully complied with its Court 
obligations. The Commission decided, on 1 March 2006, that despite progress, this was not yet the case. France, 
therefore, had to pay the €57.8 million penalty.  After a nother evaluation of the situation in France at the end of 
the second six-month period, in July 2006, the Commission concluded that France had fully implemented the 
Court requirements. As a result, France did not incur a second penalty payment.  This decision also brought  to 
an end this infringement procedure against France.  See European Commi ssion online information. Viewed at: 
http://ec.europa.eu/fisheries/press_corner/press_releases/archives/com06/com06_86_en.htm. 
 77 Community Fisheries Control Agency.  Viewed at: http://ec.europa.eu/cfca/activities_en.htm.   
 78 Council Regulation (EC) No. 1005/2008, 29 September 2008. 
 79 The scheme does not apply to the fishing fleets registered in the outermost regions of the EC (French 
overseas departments, Spanish Canary Islands, and Portuguese Azores and Madeira), which are subject to fixed fleet capacity. 
 
80 The only exceptions are capacity increases resulting from modern ization to improve safety, hygiene 
or living and working conditions on board.  The entry-to-exit ratio rises to 1:1.35 for new vessels of 100-400 gross tonnage.   WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 114 
 
 
and gives priority to sm all-scale coastal fisheries.81  Effectively, the small annual reductions of the EC 
fishing fleet are partly neutralized by technological improvements in fishing methods.82    
67. In July 2008, the EC adopted a package of measures to address the economic difficulties in 
the fisheries subsector resulting from the recent su rge in fuel prices.  "Emergency aid" totalling 
€400 million for the Community may be provided by Member States to finance the temporary cessation of vessels for three months, starting before  the end of November 2008.  Beneficiaries must 
commit to participating in national restructuring measures within six months (Fleet Adaptation Schemes) to achieve a permanent reduction of fleet capacity by at least 30% (20% for Member States 
with less than 100 fishing boats).
83   
68. Officially recognized producer organizations (POs ) play an important role in the organization 
of the fisheries subsector.  They are involved in the implementation of the EC's five market 
intervention mechanisms and relate d subsidy schemes, when prices for fish and shellfish fall below 
the Community withdrawal price, which is fixe d annually by the Commission for each marketed 
product.84  In 2006 and 2007, €12.6 milli on and €10.6 million, respectively were spent for market 
intervention. The support instruments include paymen ts to members of POs for the withdrawal of 
fishery products from markets, private storage aid to  POs, and subsidies for tuna fishermen.  Tuna 
fishermen are eligible to receive aid, subject to a trigger price mechanism, to make local tuna for 
processing competitive vis-à-vis imports which are subject to a zero tariff rate.85    
69. Financial support for the fisheries subsector co mes from several sources, the most important 
being the European Fisheries Fund (EFF) with a budg et of €3.8 billion (in 2004 prices) for 2007-13.  
The EFF finances, inter alia ,  fleet adjustment, aquaculture, inland fishing, processing and marketing, 
and fishery port infrastructure.  Funding also comes from the Eur opean Agricultural Guarantee Fund 
(EAGF), the European Agricultural Fund for Rural Development (EAFRD),  the Economic and Social 
Fund (ESF), the European Regional Development Fund,  as well as Member States.   According to the 
OECD, government financial transfers in the EC to marine capture fisheries totalled €1.53 billion in 
2003 (24% of total OECD transfers).  The largest share of support was provided for management, 
research and enforcement, followe d by decommissioning schemes, ac cess to the fishing grounds of 
other countries, investment and modernization of  fishing vessels, income support, and fisheries 
infrastructure.86   
70. MFN tariffs on fishery products average 9.7%, with rates ranging up to 23% (Table AIV.1).  
The EC's trade policy instruments on fishery products include WTO tariff quotas and autonomous (non-WTO) tariff quotas for the processing industry to  assist its competitiven ess (Table IV.8).  The 
main changes compared with the 2004-06 regime for autonomous tariff quotas include increases of 
some quotas, including for cod, shrimps and anchovi es;  the introduction of new quotas for fillets of 
cod, sole and hake;  and the removal of quotas on products, such as cod liver and whole Alaska 
Pollack, due to underutilization.
87  Some of the tariff quotas are subject to a reference price 
mechanism, whereby the benefit of the in-quota tariff is not granted if the import price is lower than 
the reference price fixed by the European Commission:  when this is the case, the out-of quota tariff is 
applied.  All tariff quotas are administered on a first-come-first-served basis. 
                                                      
 81 Council Regulation (EC) No. 865/2007, 10 July 2007. 
 82 European Commission (2007c). 
 83 Europa Press Release MEMO/08/493, 8 July 2008 .  Viewed at: http://europa.eu/rapid/pressReleases 
Action.do?reference=MEMO/08/493&format=H TML&aged=0&language=EN&guiLanguage=en. 
 84 The Community withdrawal prices are derived by  the Commission from guide prices set each year 
by the Council of Ministers. 
 85 European Commission (2002). 
 86 OECD (2006). 
 87 See WTO (2007), p. 97. European Communities WT/TPR/S/214/Rev.1 
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Table IV.8 
Tariff quotas on fishery products, 2007 
Species Quota volume 
(tonnes) In-quota tariff 
(%) Out-of-quota 
tariff 
(%) 
WTO tariff quotas    
Tunas (of the genus Thunnus ) and fish of the genus Euthunnus  17,250 0 20 
22 
Herrings 34,000 0 15 
Silver hake ( Merluccius bilinearis ) 2,000 8 15 
Fish of the genus Coregonus  1,000 5.5 9 
Fish of the genus Allocyttus and of the species Pseudocyttus maculatus  200 0 15 
Cod of the species Gadus morhua  and Gadus ogac  
Fish of the species Boreogadus saida  25,000 0 13 
Prepared or preserved fish (excluding  whole or in pieces):  of sardines, 
bonito, mackerel of the species Scomber scombrus  and Scomber 
japonicus , fish of the species Orcynopsis unicolor  865 0 25 
Prepared of preserved fish (excluding  whole or in pieces):  of sardines, 
bonito, mackerel of the species Scomber scombrus  and Scomber 
japonicus , fish of the species Orcynopsis unicolor  1,410 0 25 
Prepared of preserved fish (excluding  whole or in pieces):  of tunas, 
skipjack or other fish of the genus Euthynnus  742 0 24 
Prepared or preserved fish (excluding  whole or in pieces):  of tunas, 
skipjack or other fish of the genus Euthynnus  1,816 0 24 
Shrimps of the species Pandalus borea lis, shelled, boiled, frozen, but 
not further prepared 500 0 20 
Freshwater crayfish, cooked in dill, frozen 3,000 0 20 
Autonomous tariff quotasa    
Cod excluding livers and roes, fresh, ch illed or frozen, for processing 80,000 0 12 
Cod and fish of the species Boreogadus saida,  salted or in brine, but not 
dried or smoked, for processing 10,000 0 13 
Blue grenadier frozen fillets and ot her meat, for processing 20,000 0 7.5-15 
Hake and Pink cusk-eel, frozen, for processing 15,000 0 15 
Southern blue whiting frozen fillets a nd other meat, for pr ocessing 2,000 0 7.5-15 
Anchovies, salted or in brine, but not dried or smoked, for processing 10,000 0 10 
Herrings of a weight exceeding 100g per piece or flaps or a weight 
exceeding 50g per piece, excluding liv ers and roes, for processing 20,000 0 15 
Herrings, spiced and/or vinegar, cured,  in brine, preserved in barrels of 
at least 70 kg net drained weight, for processing 10,000 6 20 
Filets known as "loins" of tunas a nd skipjack, for processing 10,000 6 24 
Rock lobster and other sea crawfish  frozen, for processing 1,500 6 12.5 
Shrimps and prawns of the species Pandalus borealis;  cooked and 
peeled, for processing 20,000 6 20 
Tubes of squid and Illex spp., frozen, w ith skin and fins, for processing 45,000 0 8 
Squid and Illex spp., frozen whole or te ntacles and fins, for processing 1,500 0 8 
Surimi, frozen, for processing 55,000 0 15 
Hake frozen fillets, fo r processing 15,000 4 6.1 
Cod, frozen fillets and m eat, for processing 20,000 0 7.5 
Sole, frozen fillets and other fi sh meat, for processing 5,000 0 7.5 
a The quota period for the autonomous tariff quotas is 1 January 2007-31 December 2009  
Source: Schedule CXL – European Communities and EC Commission. 
71. The EC has concluded bilateral fisheries ag reements, involving an exchange of fishing 
quotas, with the Faeroe Islands, Iceland, and Norway.  In addition, the EC has entered into fisheries 
partnership agreements with Greenland and a number  of developing countries, mainly in Africa and 
the Pacific;  these involve financial compensati on by the EC for the fishing rights of about 
€160 million per year.88 
                                                      
 88 European Commission online information. Viewed at:  http://ec.europa.eu/fisheries/cfp/external_rela 
tions/bilateral_agreements_en.htm. WT/TPR/S/214/Rev.1 Trade Policy Review 
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(3) E NERGY 
72. The EC is the world's largest energy importe r and the second largest consumer. The EC-27's 
production of primary energy fell from 933 million tonnes of oil equivalent (toe) in 2002 to 
871 million toe in 2006, mainly due to the deple tion of some North Sea fields (Table IV.9).89 
Production was dominated by the United Kingdom with a 21.1% share in 2006, followed by France 
and Germany. EC-27 energy consumption in 2006 totalled 1,176 million toe (1,126 in 2002), with 
Germany as the leading consumer (19% of the total) . Industrial demand for energy has been relatively 
stable, but demand from some services subsectors (e.g . transport) has risen as a result of increased 
economic activity during the period. 
73. The EC's own energy supply covers barely half of its needs.90 In 2006, the EC's final energy 
demand reached 1,176 million toe, and the energy trade deficit amounted to €281 billion91; oil is the 
most important source accounting for 37% of gross inland energy consumption92, followed by natural 
gas (24%), solid fuels (18%), and nuclear (14%).93 Renewable energy sources contribute only 7%, 
though the aim is to increase this share to 12% by 2010 and to 20% by 2020.  The EC has also set a 
target of 21% renewable electricity by 2010 (up from 14% in 2005).94 Electricity production in the 
EC-27 has shown a steady increas e over the last few years and was at around 3.36 million GWh in 
2006 (Table IV.10). Between 199 5 and 2006, gas prices for household consumers rose by more than 
4% per year, while electricity prices have been rising in recent years due, inter alia , to the increase in 
gas prices, as gas has become one of the major fuel sources for electricity generation, and to the introduction of the CO
2 emission certificates in 2005.95 The differences in energy prices are relatively 
small between old and new Member States. Imports of electricity are duty free (Table AIV.1). 
74. Faced with unprecedented energy challenges, the EC presented its Action Plan on Energy 
Efficiency in October 2006. It seeks to save 20% of its primary energy consumption by 2020 through 
a wide range of cost-effective measures, such as ch anges in consumer behaviour, and energy-efficient 
technologies. In March 2007, the European Council agreed some common energy and climate policy 
targets, including: a 20% reduction in greenhouse em issions by 2020 (compared with 1990); a 20% 
binding share for renewable energy in the EC's ener gy mix by 2020; and a 10% share of biofuels in 
road transport in each Member State.  
                                                      
 89 Primary energy production takes place when natural resources are exploited (e.g. coal mines, crude 
oil fields, hydro power plants). Transformation of energy from one form to another, such as electricity or heat 
generation in thermal power plants is not considered as primary production.  
90 In 2004, energy dependency ratios varied from lows in the United Kingdom and Poland to upwards 
of 80% in Portugal, Italy, Ireland, Cyprus, Luxembourg, and Malta. Denmark is the only net exporter of energy 
(Eurostat, 2007b). 
 91 SPEECH/08/96, 21 February 2008. 
 92 EC oil consumption amounts to over 13 million barrels per day (mbpd), while production is 
2.7 mbpd. The United Kingdom is the leading EC producer (70% of the total), followed by Denmark (15%). Oil 
imports mainly come from the Russian Federation and Middle East countries (Eurostat, 2007). 
 93 European Commission (2006a). 
 94 Eurostat (2007b). 
 95 In the context of reducing greenhouse gas emissions to prevent global warming. Due to the 
progressive increase in energy consumption, CO 2 emissions are expected to rise by some 60% by 2030. 
European Commission (2006a). European Communities WT/TPR/S/214/Rev.1 
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Table IV.9 
Production and consumption of energy, 2002-06 
('000 tonnes of oil equivalent (toe)) 
 Total production of primary energy Final energy consumption 
 2002 2003 2004 2005 2006  2002 2003 2004 2005 2006 
EC-27 933,220 927,211 923,067 891,431 871,247  1,126,277 1,158,167 1,171,395 1,172,293 1,176,120 
EC-25 894,665 888,820 884,479 853,427 832,924  1,094,532 1,124,559 1,136,754 1,138,114 1,141,386 
EC-15 754,115 744,738 743,107 713,349 693,947  971,814 997,594 1,007,212 1,007,816 1,007,412 
Austria 9,682 9,485 9,682 9,337 9,587  24,995 26,300 26,241 27,107 26,753 
Belgium 12,883 13,118 13,159 13,453 13,367  37,551 39,947 39,342 38,443 38,165 
Bulgaria 10,530 10,098 10,169 10,553 10,911  8,719 9,432 9,211 9,565 10,028 
Cyprus 45 48 48 48 50  1,708 1,813 1,818 1,809 1,840 
Czech Republic 30,396 34,073 32,781 32,434 33,074  23,571 25,234 26,078 25,776 26,251 
Denmark 28,505 28,403 31,018 31,273 29,511  14,743 15,076 15,309 15,457 15,627 
Estonia 3,653 4,205 4,029 4,210 3,858  2,544 2,625 2,743 2,783 2,775 
Finland 15,579 15,508 15,415 16,210 17,787  25,092 25,630 26,093 25,252 26,679 
France 133,388 134,802 135,667 135,474 135,567  153,709 157,457 159,619 159,262 157,779 
Germany 133,888 135,246 136,987 135,663 136,850  219,240 221,938 220,381 218,369 223,062 
Greece 10,539 9,887  10,264 10,291 10,050  19,546 20,530 20,297 20,800 21,454 
Hungary 11,132 10,684 10,166 10,400 10,344  17,014 17,624 17,462 18,080 17,920 
Ireland 1,511 1,834 1,847 1,616 1,597  11,208 11,463 11,685 12,340 13,037 
Italy 26,329 27,274 28,073 27,665 27,053  124,743 130,280 131,116 132,600 130,654 
Latvia 1,609 1,730 1,840 1,856 1,842  3,612 3,813 3,921 4,030 4,201 
Lithuania 4,812 5,105 4,963 3,683 3,244  4,014 4,123 4,286 4,465 4,722 
Luxembourg 56 60 73 74 79  3,745 3,967 4,350 4,439 4,398 
Malta .. .. .. .. ..  454 468 469 526 478 
Netherlands 60,415 58,443 67,664 61,899 60,763  50,735 51,598 52,518 51,639 50,835 
Poland 79,062 78,709 77,959 77,717 76,848  54,085 55,867 57,116 57,324 60,163 
Portugal 3,643 4,336 3,894 3,578 4,320  18,389 18,393 20,177 18,723 18,544 
Romania 28,024 28,294 28,419 27,450 27,413  23,026 24,176 25,431 24,614 24,706 
Slovakia 6,485 6,281 6,152 6,251 6,302  11,124 10,710 10,855 10,614 10,680 
Slovenia 3,356 3,245 3,435 3,479 3,415  4,594 4,688 4,794 4,892 4,945 
Spain 31,567 32,782 32,399 30,127 31,195  85,623 90,661 94,523 97,455 96,642 
Sweden 31,225 30,390 33,799 34,166 32,275  33,540 33,576 33,624 33,740 33,218 
U.K. 254,905 243,171 223,166 202,524 183,946  148,956 150,779 151,937 152,188 150,565 
.. Not available. 
Source:  Eurostat (2008), Europe in figures: Eurostat Yearbook 2008 , Luxembourg. 
75. On the basis of the Green Paper adopted by the Commission in March 2006, the main EC 
objectives in energy are: completion of  a fully competitive internal market96; assuring the security of 
energy supply; and achieving environmentally sustaina ble, clean, and efficient energy supply and use. 
As from 1 July 2004, EC industrial consumers have free choice of their gas and electricity supplier; 
                                                      
 96 Market integration is still insufficient, with impor tant price differences within the internal market, 
and a low level of cross-border trade in electricity and gas. The European Council has agreed that all Member 
States must have interconnection capacity equivalent to at least 10% of their national consumption; this 
objective has not yet been achieved. Th erefore, electricity and gas markets, except in Nordic countries, remain 
national in scope (Europa Press Release MEMO/05/427, 14 November 2005). WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 118 
 
 
this was extended to all EC households on 1 July 2007.97 Overall policy measures also comprise 
further interconnection of European energy grids;  extension of the energy market to neighbouring 
countries and regions; further diversification of ener gy forms, sources, and supply routes; increases in 
clean indigenous energy production, including renewable energies and other low carbon energy 
sources;  increased and more effective energy tech nology development; and greater coordination of 
external energy policy and promotion of such policy approaches on a global basis. 
Table IV.10 
Electricity generation, 2002-06 
(GWh and % of gross electricity consumption) 
 Total gross electricity generation  El ectricity generated from renewable sources
 2002 2003 2004 2005 2006  2002 2003 2004 2005 2006 
EC-27 3,117,112 3,216,032 3,287,571 3,309,106 3,357,958  12.9 12.9 13.9 14.0 14.5 
EC-25 3,019,498 3,116,787 3,189,468 3,205,328 3,249,417  12.7 12.7 13.7 13.6 14.3 
EC-15 2,679,777 2,762,875 2,830,746 2,846,976 2,886,919  13.5 13.7 14.7 14.5 15.0 
Austria 62,417 60,095 64,125 65,697 63,503  66.1 53.1 58.7 57.4 56.6 
Belgium 82,060 84,616 85,441 87,025 85,535  1.8 1.8 2.1 2.8 3.9 
Bulgaria 42,679 42,600 41,621 44,365 45,843  6.0 7.8 8.9 11.8 11.2 
Cyprus 3,785 4,053 4,201 4,377 4,652  0.0 0.0 0.0 0.0 0.0 
Czech Republic 76,348 83.227 84,333 82, 578 84,361  4.6 2. 8 4.0 4.5 4.9 
Denmark 39,284 46,181 40,433 36,355 45,716  19.9 23.2 27.1 28.2 25.9 
Estonia 8,527 10,159 10,304 10,205 9,731  0.5 0.6 0.7 1.1 1.4 
Finland 74,899 84,230 85,817 70,550 82,304  23.7 21.8 28.3 26.9 24.0 
France 559,441 566,959 574,279 576,169 574,473  13.7 13.0 12.9 11.3 12.4 
Germany 571,645 599,470 616,785 620,300 636,600  8.1 8.2 9.5 10.5 12.0 
Greece 54,608 58,471 59,346 60,020 60,789  6.2 9. 7 9.5 10.0 12.1 
Hungary 36,161 34,145 33,708 35,755 35,859  0.7 0.9 2.3 4.6 3.7 
Ireland 25,217 25,225 25,575 25,357 27,479  5.4 4.3 5.1 6.8 8.5 
Italy 284,397 293,884 303,322 303,699 314,122  14.3 13.7 15.9 14.1 14.5 
Latvia 3,975 3,975 4,689 4,905 4,891  39.3 35.4 47.1 48.4 37.7 
Lithuania 17,721 19,488 19,274 14,784 12,482  3.2 2.8 3.5 3.9 3.6 
Luxembourg 3,676 3,612 4,145 4,129 4,333  2.8 2.3 3.2 3.2 3.5 
Malta 2,052 2,236 2,216 2,240 2,296  0.0 0.0 0.0 0.0 0.0 
Netherlands 95,965 96,775 100,769 100,219 98,392  3.6 4.7 5.7 7.5 7.9 
Poland 144,126 151,631 154,159 156,936 161,743  2.0 1.6 2.1 2.9 2.9 
Portugal 46,109 46,855 45,108 46,578 49,041  20.8 36.4 24.4 16.0 29.4 
Romania 54,935 56,645 56,482 59,413 62,698  30.8 24.3 29.9 35.8 31.4 
Slovakia 32,427 31,178 30,567 31,455 31,368  18.6 12.0 14.3 16.7 16.6 
Slovenia 14,599 13,820 15,271 15,117 15,115  25.4 22.0 29.1 24.2 24.4 
Spain 246,079 262,860 280,007 294,040 303,007  13.8 21.7 18.5 15.0 17.3 
Sweden 146,733 135,435 151,727 158,435 143,298  46.9 39.9 46.1 54.3 48.2 
United Kingdom 387,247 398,207 393,867 398,403 398,327  2.9 2.8 3.7 4.3 4.6 
Source:  Eurostat (2008), Europe in figures: Eurostat Yearbook 2008 , Luxembourg. 
                                                      
 97 These changes required the establishment of legally distinct companies with operational separation 
between generation and distribution (Eurostat, 2007b). European Communities WT/TPR/S/214/Rev.1 
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76. Since the last TPR of the EC, some of its key energy-policy developments include the 
adoption, on 19 September 2007, of a third packag e of legislative proposals aimed at solving the 
structural shortcomings in the energy market , notably lack of competition (Chapter III(4)(iii)).98 The 
industry is characterized by concentration and lack of real competition and, with few exceptions, the 
largest three national companies have over 75% share of the market. Vertically integrated companies 
(i.e. those that deal with supply, production, a nd the operation of the electricity and gas networks) 
have an interest in remaining dominant in their national supply markets, while their networks help 
them retain this position. As a result, new compan ies entering the gas and electricity markets, who 
have no choice but to use the existing networks face, inter alia , discriminatory access conditions, and 
a limited network capacity.99 Lack of transparency also undermin es the position of new entrants and 
aggravates mistrust by industry and consumers in the pricing of energy. 
77. The third energy package proposes measures on five main areas: unbundling (separation of 
the operation of electricity and gas transmissi on networks from supply and generation activities)100; 
facilitating cross-border energy trade, and strengt hening national regulators through the setting up of a 
European agency for the cooperation of energy regulators101; promoting cross-border collaboration 
and investment through the establishment of a new European network for transmission system 
operators102; greater transparency and improved record keeping; and access to storage and liquefied 
natural gas (LNG) facilities. A new Energy Customers'  Charter is to be launched in 2008. It will 
include measures to address fuel poverty, informa tion for customers to choose a supplier and supply 
options, and actions to lower red tape when cha nging energy suppliers and to protect citizens from 
unfair selling practices. 
78. During 2007-13, planned direct expenditure fo r energy efficiency and renewable energy 
measures under the Cohesion Policy programmes amount s to about €9 billion (around 2.6% of the 
total funds available under the programmes, up fro m 1% over 2000-06). About €155 million per year 
was budgeted to support the development of the tr ans-European energy network (TEN-E) during 
2007-13 (up from €25 million over 2000-06).103 An additional €675 million is foreseen to support 
TEN-E projects under the Cohesion Policy progra mmes. Moreover, around €30 million per year has 
been budgeted to finance several other energy-rela ted programmes: Altener (promotion of renewable 
                                                      
 98 The first package basically consisted of the Electri city and Gas Directives of 2003, which established 
the right to be supplied with electricity and gas at  reasonable and transparent prices. The second package 
provided for the protection by Member States of customers in general, and of vulnerable customers, in particular 
(e.g. the right to receive clear, transpar ent, comparable bills ). See WTO (2007). 
 99 Europa Press Release MEMO/07/361, 19 September 2007. 
 100 Dominant positions and insufficient unbundling, especially in gas transmission and in gas and 
electricity distribution, seem to discourage consumers from switching supplier. The third energy package 
recognizes that effective separation of  supply and production activities is re quired, but it did not go as far as 
requiring ownership unbundling.  
 101 All Member States now have electricity and gas regulators, but they have different powers and 
cannot deal with cross-border issues, making it difficult for new electricity and gas companies to supply customers in other countries. In addition, some Member States have set up several regulators, at national and 
regional levels, and in some cases power is split betwee n the sector-specific regulator, the competition authority, 
and the ministry;  this undermined effective regulation.  The European Agency for the cooperation of energy 
regulators would complement, at the European level, the regulatory tasks performed at the national level. It 
implies a transition from the current structure for inte rnational cooperation of regulators in the so-called 
European Regulators Group for El ectricity and Gas (ERGEG).  Euro pa Press Release MEMO/07/361, 
19 September 2007. 
 
102 EC grid operators would cooperate and develop common commercial and technical codes and 
security standards, as well as plans, and coordinate the investments needed at  EC level. This is also aimed at 
easing cross-border trade and creating a more level play ing field for national operators (Europa Press Release 
IP/07/1361, 19 September 2007).  
103 Europa Press Release MEMO/07/6, 10 January 2007. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 120 
 
 
energy sources); Save (promotion of energy efficiency ); Sure (safe transport of radioactive materials); 
Synergy (promotion of internationa l cooperation in energy); and Etap (studies, analyses, and forecasts 
on energy).104 Moreover, some €20 million has been allocated  annually to support activities related to 
nuclear energy.105 
(4) M ANUFACTURING  
(i) Overview 
79. The manufacturing sector is of great importance to the EC economy (Chapter I(1)). In 2005, it 
comprised 2.3 million enterprises, generated a tur nover of €6,323 billion, and produced a value added 
of €1,629.9 billion (Table IV.11). Germany is the lead ing contributor to the EC-27's total value added 
with a 26.3% share, followed by France (13.1%), the United Kingdom (12.9%), and Italy (12.8%). Manufacturing also accounts for some three quarters of the EC's merchandise exports.
106 Over 80% of 
private-sector R&D expenditure is spent in manufactur ing, and the sector is closely inter-linked with 
services to which it supplies key inputs.  
Table IV.11 
Main indicators of EC-27 manufacturing, 2005 
 Value added 
at factor 
cost Persons 
employed Number of 
enterprises Turnover Average 
personnel 
costs Apparent 
labour 
productivity Wage 
adjusted 
labour 
productivity Gross 
operating 
rate 
Country  (€ billion) '000 '000 (€ billion) (€'000) (€'000) % % 
Austria  41.6 619.8 28.4 132.0 42.8 67.1 156.9 12.1 
Belgium  48.1 614.8 36.6 212.0 49.4 78.3 158.6 9.2 
Bulgaria 3.2 645.2 28.7 16.9 2.4 5.0 205.0 10.1 
Cyprus  1.1 36.8 5.6 3.4 19.4 29.6 152.2 12.5 
Czech Republica  21.2 1,363.2 151.3 87.3 8.8 15.5 175.7 12.1 
Denmark  25.7 409.9 18.6 80.1 44.5 62.7 140.9 9.8 
Estonia  1.6 130.9 5.1 6.4 7.6 12.2 160.8 9.6 
Finland 30.1 406.7 25.2 120.9 43.0 74.0 172.1 11.7 
France  214.0 3,737.2 256.0 945.7 42.8 57.3 133.7 6.0 
Germany  429.5 7,171.5 203.9 1,636.3 55.0 59.9 108.9 6.6 
Greece  14.3 389.7 91.2 48.4 24.3 36.6 150.7 14.7 
Hungary  16.8 794.3 65.0 77.2 10.4 21.1 204.0 11.6 
Ireland  34.1 217.1 4.3 113.0 41.9 157.2 375.3 22.2 
Italy  208.9 4,610.3 519.3 863.4 33.1 45.3 137.0 9.5 
Latvia  1.5 166.8 7.6 5.3 4.2 8.9 213.7 15.1 
Lithuania  2.5 266.3 15.6 11.3 5.0 9.5 189.6 11.1 
Luxembourg 2.7 37.1 1.0 20.0 47.6 71.8 150.8 4.6 
Maltab 0.8 31.7 3.8 2.6 14.2 25.5 178.9 15.3 
Netherlands  57.6 767.6 45.6 257.0 46.1 75.1 163.0 9.4 
Poland  48.3 2,473.5 191.6 167.5 7.6 19.5 256.8 18.6 
Portugal  18.5 868.9 104.3 73.1 13.6 21.3 157.0 9.5 
Romania 9.1 1,621.0 57.9 41.3 3.4 5.6 166.8 9.0 
Slovenia  5.8 232.9 17.0 20.8 17.2 24.9 145.0 9.5 
Slovakia  5.9 404.8 6.8 30.7 7.7 14.5 188.0 9.0 
Spain 125.0 2,599.3 219.9 486.6 29.7 48.1 161.9 10.6 
Sweden 49.9 797.0 60.4 175.3 46.2 62.7 135.6 9.1 
United Kingdom 210.7 3,245.6 153.4 682.6 39.5 64.9 164.2 12.7 
EC-27 1,629.9 34,643.8 2,322.3 6,322.6 33.9 47.0 138.7 8.3 
a Data for 2004. 
b Data for 2002. 
Source : Eurostat (2008), The main features of the EU manufacturing industry , Luxembourg. 
                                                      
 104 In 2002, the Carnot (clean and efficient use of solid fuels) programme was terminated, while Altener 
and Save were transferred to the Intelligent Energy Programme. 
 105 WTO (2007). 
 106 In 2006, EC-27 exports and imports of manufactur ed goods reached €1,061 billion and €952 billion, 
respectively. Between 2001 and 2006, exports of manufac tured goods increased by 7.3% yearly on average, 
while imports grew by 7.1% (Eurostat, 2007b). European Communities WT/TPR/S/214/Rev.1 
 Page 121 
 
 
80. Production in EC manufacturing grew by 26% between 1996 and 2006 on average, rising in 
all industries with the exception of textiles (- 32%) and leather (-42%). Electrical and optical 
equipment led the sector, with 53% growth during th e period (Chart IV.1), followed by transport 
equipment (50%), and chemicals (44%). Employme nt in manufacturing fell by 11% during 1996-06, 
on average, decreasing in all activities except for rubbe r and plastics. There is a big difference in the 
manufacturing structure among Member States. The wei ght of the seven largest industries in the EC's 
manufacturing value added ranged from 92% in Ireland (mainly because of the importance of 
chemicals, chemical products, and man-made fibres) to 50% in Lithuania.107 
-42%-32%3%10%16%16%17%24%25%25%26%28%44%50%53%
-60% -40% -20% 0% 20% 40% 60%LeatherTextilesFuel processingOther manufacturingFood, beverages and tobaccoOther non-metal productsPaper, publishing and printingMetals and metal productsMachinery and equipmentWood and wood productsManufacturingRubber and plasticsChemicalsTransport equipmentElectrical and optical equipmentChart IV.1                       
EC-27 production growth by manufacturing activity, 1996-2006
Source: Eurostat (2008), The main features of the EU manufacturing industry, Luxembour g.  
81. The single-largest manufacturing activity in value- added terms is basic me tals and fabricated 
metal products with 13.6% share in 2005, followed by food products, beverages and tobacco (12.2%), 
and electrical and optical equipment (11.6%). For employment the order of activities is the same 
(Table IV.12). Coke, refined petr oleum products and nuclear fuel ra nked first in terms of apparent 
labour productivity (€227,200), almost five tim es the manufacturing average (€47,200), while the 
leather and leather products industry was last (€20,300).108 The most profitable of the manufacturing 
activities was other non-metallic mine ral products, with a 12.5% gross operating rate, while the least 
profitable was transport equipment (3.1%).109 
                                                      
 107 When the cumulative share is lower than the EC average, the country is relatively specialized in 
other activities that are of less importance at EC level.  For example, in the six countries with the lowest 
cumulative shares (i.e. Lithuania, Estonia, Latvia, Port ugal, Bulgaria, and Romania), the shares of textiles and 
textile products in manufacturing were among the highest, ranging from 9.2% to 13.4 %; while this subsector 
accounted for 3.3% of manufacturing value-a dded at EC-27 level (Eurostat, 2008i). 
 108 Apparent labour productivity is the value-added per person employed in each activity. 
 109 The gross operating rate (share of operating surp lus in turnover) is an indicator of profitability. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 122 
 
 
Table IV.12 
Main indicators of EC-27 manufacturing by subsector, 2005 
 
Value added Employment Apparent labour 
productivity Gross operating 
rate 
Subsector (€ billion) (%) ('000) (%) (€ '000) (%) 
Food products, beverages and tobacco  199.1  12.2 4,700  13.6 42.0 9.2 
Textiles and textile products 53.3 3.3 2,614 7.5 20.4 8.1 
Leather and leather products 11.4 0.7 564 1.6 20.3 8.1 
Wood and wood products 35.1 2.2 1,280 3.7 27.5 9.9 
Pulp, paper and paper products, publishing and 
printing 134.7 8.3 2,562 7.4 52.6 11.5 
Coke, refined petroleum products and nuclear fuel 38.5 2.4 170 0.5 227.2 6.3 
Chemicals, chemical products and man-made fibres 178.5 10.9 1,888 5.5 94.5 12.0 
Rubber and plastic products 76.1 4.7 1,700 4.9 43.9 8.8 
Other non-metallic mineral products 73.5 4.5 1,596 4.6 46.0 12.5 
Basic metals and fabricated metal products 221.9 13.6 5,045 14.6 44.0 9.2 
Machinery and equipment  178.4 10.9 3,636 10.5 49.1 6.9 
Electrical and optical equipment 189.8 11.6 3,664 10.6 51.8 7.9 
Transport equipment 181.9 11.2 3,152 9.1 57.7 3.1 
Other manufacturing 57.7 3.5 1,988 5.7 29.0 8.7 
Total manufacturing 1,629.9 100.0 34,644 100.0 47.0 8.3 
Source:  Eurostat (2008), The main features of the EU manufacturing industry , Brussels.  
82. In October 2005, the Commission set the current EC industrial policy, in the light of concerns 
about de-industrialization110, and in accordance with the objec tives set by the Lisbon European 
Council of 23 and 24 March 2000.  The policy comp lements work at Member State level, and 
includes seven major horizontal policy initiatives a nd seven sector-specific initiatives, as well as the 
screening of opportunities and challenges for 27 i ndividual industries gro uped into four broad 
categories (food and life sciences, machine and systems, fashion and design, and basic and 
intermediate).  The sector remains dominated by small and medium-sized enterprises (SMEs). In 
November 2005, the Commission tabled a new compre hensive policy for SMEs to help make them 
more competitive.111 
83. The manufacturing sector is a major beneficiary of state aid (Chapter III(4)(iii)(c)). In 
addition, various EC support programmes are available to SMEs: (i) the 7th Research Framework 
Programme (FP7) has allocated some 15% of its budget (€8 billion) to projects involving SMEs over 
2007-13112; (ii) the Competitiveness and Innovation Pr ogramme (CIP), with a budget of around 
€3.6 billion for 2007-13, is aimed at, inter alia , increasing SMEs' innovative capacity through easier 
access to capital in the form of loans, equity, venture capital and guarantees, as well as technical 
assistance and grants113; (iii) the Joint European Resources for Micro to Medium Enterprises 
(JEREMIE) is aimed at involving SMEs fully in regional policy through improved access to 
finance114; and (iv) the cohesion policy programmes, notably the European Regional Development 
Fund and the European Social Fund, have a llocated some €55 billion over 2007-13 for business 
support, of which a large share is expected to be nefit SMEs. Moreover, the Commission is reviewing 
                                                      
 110 Eurostat (2007b). 
 111 Some 2.3 million SMEs participate in the EC economy, notably in the manufacturing sector, i.e. 
99% of total SMEs, about 60% of manufacturing employment, and 45% of manufacturing value-added. A new 
definition of SMEs has been in use since 1 January 2005: micro companies have less than ten employees, and a 
turnover/balance sheet of  up to €2 million; small enterprises have less than 50 workers, and a turnover/balance 
sheet of up to €10 million; and medium-sized companies employ less than 250 workers, have a turnover of up to 
€50 million, or balance sheet of up to €43 million. See WTO (2007).  
112 The 7th Research Framework Programme is the main EC  instrument for funding research. It has a 
budget of €53.2 billion over 2007-13.  European Commission online information. Viewed at: http://www.ec. 
europa.eu/research/fp7 [11 June 2008].  
113 Europa Press Release IP/06/1349, 11 October 2006. 
 114 JEREMIE's resources are derived from the EC's structural funds. SMEs can now be assisted 
irrespective of their location. JEREMIE is particularly  important for new Member States. European Commission 
online information. Viewed at: http://w ww.eif.org/jeremie [11/June/2008]. European Communities WT/TPR/S/214/Rev.1 
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state aid rules to allow greater flexibility and pr ovide better targeted support to SMEs, including on 
innovation. 
84. On the basis of ISIC (Revision 2), MFN customs tariffs on manufactured imports average 
6.7%, with rates ranging up to 604.3% on certain food products (Chart IV.2 and Table AIV.1). 
Specific tariffs are levied on products such as alcoholic beverages, and products of the milling 
industry; compound duties are applied on, inter alia , preparations of cereals and vegetables; alternate 
duties on, inter alia , sugar confectionary, ice cream, clocks and watches; and "per range" tariffs on, 
inter alia , edible vegetables, edible fruit, and preparati ons of cereals. Overall, in industries requiring 
inputs that are also produced by the EC (agricu ltural commodities in particular), the tariff shows 
mixed escalation; because of the lack of competitiv eness partly resulting from high tariff protection of 
these inputs, exports of these manufactured goods requir e subsidies. In industries requiring inputs that 
are not produced by the EC (certa in agricultural and mineral products  in particular), the tariff shows 
positive escalation, i.e. a high effective ra te of protection (Chapter III(2)(ii)). 
(ii) Selected industries 
(a) Automotive  
85. The automotive industry is a key subsector for the EC economy, contributing 3% to GDP, 
7.5% to total manufacturing value added (more th an €100 billion), and 7% to total manufacturing 
employment.115 The industry has many vehicle manufacturing firms and a substantial number of 
independent suppliers to wh ich about two thirds of the production is outsourced.116 It accounts for 
over 20% of manufacturing R&D (e.g. hybrid cars and hydrogen technologies) in the EC (over 
€20 billion). Traditionally, the industry has enjoye d a trade surplus (€40 billion in 2007, with 
€78.5 billion in exports). 
86. With a motor vehicle production of some 18.1 million units in 2006 (16.8 million units in 
2003), the EC is the largest automotive production region in the world.117 Nonetheless, its share in 
world production declined from 34% in 2003 to 27% in 2006, largely due to increased production in 
other countries.118 The challenges currently faced by the EC automotive industry include strong price 
competition, and high raw material and energy pr ices. Therefore, the policy emphasis is on cost 
management and restructuring production processes.119 
                                                      
 115 The automotive industry provides direct employment for about 2 million workers, while total 
employment (direct and indirect) is estimated at 10-1 1 million. A number of EC car manufacturers have 
announced job cutting programmes over the last few years. European Commission online information. Viewed 
at: http://ec.europa.eu/enterprise/automotive/pagesbackground/sectoralanalysis/index.htm [12 June 2008] 
 116 The automotive industry has for a long time undergone mergers and acquisitions. Currently, the 
main EC manufacturers are: DaimlerChrysler, Volkswagen, BMW, Ford Europe, General Motors Europe, 
Renault, Peugeot-Citroen, Fiat, Toyota Europe, and Porsche. In addition, there are a number of small firms, 
while Korean manufacturers also have significant facilities in the EC. European Commission online 
information. Viewed at: http://ec.europa.eu/enterprise/automotive/pagesbackground/sectoralanalysis/index.htm 
[12 June 2008]. 
 117 In 2006, the number-one EC manufactured product sold was motor vehicles with a petrol engine 
larger than 1,500 cm3 (€119.4 billion in sales), followed by motor vehicles with a diesel or semi-diesel engine 
larger than 1,500 cm3 but less than 2,500 cm3 (€96.6 billion). See Eurostat (2008i). 
 118 While world automotive production grew by 4% in 2006, production in China (P. R.) increased by 
nearly 30% (more than 7 million vehicles), surpassing Germany (5.8 million), and ranking it third behind the 
United States and Japan. According to some analysts, Germany could lose its fourth spot to the Russian 
Federation by 2015 and be knocked out of fifth place by India before 2020 ( EurActiv News , 27 July 2007).  
 119 Europa Press Release IP/07/157, 7 February 2007.  The existence of a large home market is a major 
competitive advantage for EC auto manufacturers. However,  during the last few years, EC car-makers have been 
struggling to cope with compliance costs linked to stricter EC safety and environmental rules, and with the rise in the euro. This has forced EC manufacturers to restruct ure or delocalize to cheaper production destinations.  WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 124 
 
 
0102030405060708090100110120130
111
122
210
230
311
313
321
323
331
341
351
353
355
361
369372
382
384
390Chart IV.2
EC tariff by ISIC classsification, 2008
Per cent
WTO Secretariat calculations, based on EC OJ L286, 31 October 2007.AverageMaximu m
Minimu m
International Standard Industrial Classification, Revision 2
Source :111 
121 122130
210
220230390311
312
313314321
322
323
324
331
332
341
342Description
Agricultural and livestock production
ForestryLoggingFishing
Coal mining
Crude petroleum and natural gas productionMetal ore miningOther miningFood production
Other food products and animal feeds
BeveragesTobacco manufacturingTextiles
Manufacture of wearing apparel, except footwear
Leather products, except footwear and wearing apparelFootwear, except vulcanized rubber or plastic footwearWood and wood products, except furniture
Manufacture of furniture and fixtures, except primarily of 
metalPaper and paper productsPrinting, publishing and allied industriesDescription
Industrial chemicals
Other chemicals, including pharmaceuticalPetroleum refineriesManufacture of miscellaneous petroleum and coal
products
Manufacture of rubber products n.e.s.Manufacture of plastic products n.e.s.Pottery, china and earthenwareManufacture of glass and glass products
Other non-metallic mineral products
Iron and steel basic industriesNon-ferrous metal basic industriesFabricated metal products, except machinery and 
equipment
Non-electrical machinery including computersElectrical machinery apparatus, appliances and suppliesTransport equipment
Professional and scientific equipment
Other manufacturing industriesElectrical energy351
352353354
355
356361362
369
371372381
382
383
384
385
390410604.3%
150200250280.9%
 European Communities WT/TPR/S/214/Rev.1 
 Page 125 
 
 
87. On 7 February 2007, the EC launched a new strategy for its automotive industry.120 It is 
aimed at keeping the industry viable on a long-te rm basis through changes in five main areas: 
(i) reducing administrative barriers by replacing 38 EC directives with the corresponding UN Economic Commission for Europe (UNECE) regulations  (e.g. on tyres, safety glass, and seatbelts); 
(ii) cutting CO
2 emissions by 20% by 2020, through technological improvements and use of bio-fuels; 
(iii) increasing road safety via a combination of improvement in vehicle technology, road infrastructure, driver behaviour, and enforcement; (iv) assessing the potential benefits of negotiating 
bilateral trade agreements, particularly in South- East Asia, to improve market access, and ensuring 
that intellectual property rights are promoted and en forced globally; and (v) investing in R&D, mainly 
in clean renewable fuels and intelligent vehicles and roads. The Commission, together with the 
relevant stakeholders, conducte d a mid-term review in 2008 to monitor the progress made. 
88. On 26 November 2008, as part of the EC's economic  recovery plan (Chapter I(4)), a €5 billion 
"European green cars initiative" was adopted. It aims to achieve a breakthrough in the use of 
renewable and non-polluting energy sources, safety, a nd traffic fluidity. In addition, several specific 
measures to assist auto-makers are envisaged, including: (i) temporary authorization to Member States to subsidize part of the cost of guarantees for loan s to car producers; (ii) support to the European 
Investment Bank (EIB) to provide loans to car comp anies and their suppliers to finance innovation in 
clean technologies and better environmental perform ance; and (iii) temporary authorization to 
Member States (to provide subsidized loans for invest ment in new cars) that either anticipate or go 
beyond new Community environmental standards before they enter into force.
121 
89. Tariff protection for motor vehicles is relatively low, with an average of 6.3%, but ranging up 
to 22% (Table AIV.1). 
(b) Chemicals 
90. The EC is the world's leading chemicals producer; it has a turnover of almost €500 billion 
(7.9% of total turnover in manufacturing), and accounts for over 25% of world production. In 2005, chemicals was the EC's fifth manufacturing subsector in terms of value added (10.9% of 
manufacturing value added), and contributed about 2%  to total GDP. The chemical industry is capital 
intensive, but still employs 1.2 million people (5% of manufacturing workers). It comprises some 
27,000 enterprises, 96% of which are SMEs, and is  a key supplier to virtually all sectors of the 
economy. About 30% of chemicals are further processed within the sector.
122 
91. Chemicals represents about one quarter of the EC's entire manufacturing trade surplus: in 
2007, exports amounted to €110 billion, while impor ts were €75 billion. Germany, the largest 
chemicals producer in Europe, France, Italy, and the United Kingdom, produce about 60% of the EC's 
chemicals output. Environmental expenditure in the chemicals, rubber, and plastics industries 
amounts to 3.5% of their value added, and acco unts for 23% of EC environmental protection 
expenditure for all industries.123 
92. The new regulatory framework for chemical s called REACH (registration, evaluation, 
authorization, and restriction of chemicals) entere d into force on 1 June 2007. Its aim is to secure a 
high level of protection for human health and the environment, while ensuring the efficient 
                                                      
 120 This strategy followed the recommendations of the CARS 21 High Level Group established in 2004. 
It brought together the main stakeholders to advise the Commission on future policy options for the car industry.  
121 Green Car Congress online information. Viewed at: http://www.greencarco ngress.com/2008/11/euro 
pean-commis.html#more [27 November 2008]. 
 122 WTO (2007). 
 123 WTO (2007). WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 126 
 
 
functioning of the internal market, and stimulating innovation and competitiveness.124 It gives greater 
responsibility to the industry to manage the risks fro m chemicals and to provide safety information on 
the substances, and calls for th e progressive substitution of the most dangerous chemicals when 
suitable alternatives exist. The new European Ch emical Agency (ECHA), established under REACH, 
has been fully operational since J une 2008. The agency's tasks are to, inter alia , ensure the consistent 
application of the system, and to manage the database of all registered chemicals.125 The direct costs 
of REACH to the chemicals industry are estim ated at €2.3 billion over an 11-year period.126 
93. MFN tariffs on industrial chemicals and basic industrial chemicals average 4.8% and 4.7%127, 
respectively, with rates ranging up to 89.8% (Tab le AIV.1). Some of the EC's applied anti-dumping 
duties and countervailing measures are on chemic al products (Chapter III(2)(vii)(b) and (c)). 
(c) High-technology products 
94. In 2005, the EC was the world's main exporter of high-tech products128,  with 17.2% of the 
world share (down from 18% in 1995), and half of EC merchandise exports worth €197.8 billion;  it 
was also the world's leading importer of such pr oducts, with €229.5 billion or almost one-fifth of 
world imports129, i.e. an overall trade deficit of €31.7 billi on. Germany is by far the leading EC trader 
and a net exporter of high-tech products, followe d by France, the United Kingdom, the Netherlands, 
Denmark, Ireland, Luxembourg, Malta, Finland, an d Sweden. High-tech products, as a percentage of 
total merchandise exports, ranged from 2.9% in the case of Belgium to 50.8% for Malta (Table IV.13). 
95. Electronics and telecommunications accounts for th e largest share of high-tech exports (over 
20%) from most Member States;  the exceptions  are Belgium (whose highest share comes from 
pharmaceuticals), Czech Republic (computer and office machinery), Denmark (pharmaceutical 
products), France (aerospace), Ireland (computer and office machinery), Lithuania (aerospace), Luxemburg (computer and office machinery), the Ne therlands (computer and office machinery), the 
Slovak Republic (computer and office machinery), and Slovenia (pharmaceuticals). In terms of high-
tech imports, the largest share is also in electronics and telecommunications, followed by computers and office machinery, and aerospace.
130 
                                                      
 124 Key elements of REACH include increasing the threshold for registering new substances from 10 kg 
to 1 tonne, and the maximum time-limit for exemption from registration for R&D from 6 to 15 years. 
 125 EC manufacturers and importers are required to gather information on the properties of their 
chemical substances, and to register the information in a central database run by ECHA in Helsinki. European 
Commission online information. Viewed  at:  http://ec.europa.eu/environm ent/chemicals/reach /reach_intro.htm 
[18 June 2008].  
126 REACH provisions will be phased-in over 11 y ears. The Commission will carry out reviews of 
some REACH provisions within 18 months after its entr y into force. European Co mmission online information. 
Viewed at:  http://ec.europa.eu/environmen t/chemicals/reach/index_en [18 June 2008]. 
 127 The EC participates in the Chem ical Tariff Harmonization Agreement. 
 128 High-tech products are (UN Standard Intern ational Trade Classification, Rev.3): aerospace 
(7921-25, 79293, (714-71489-71499), 87411); computers- office machines (75113, 75131, 75132, 75134, (752-
7529), 75997); electronics-telecommunications (76381, 76383, (764-76493-76499), 7722, 77261, 77318, 77625, 
7763, 7764, 7768 , 89879); pharmaceuticals (5 413, 5415-16, 5421, 5422); scien tific instruments (774, 8711, 
8713-14, 8719, 87211, (874-87411-8742), 88111, 88121, 88411, 88419, 89961, 89963, 89967); electrical 
machinery (77862-65, 7787, 77884); chemicals (52222-23, 55229, 52269, 525, 57433, 591); non-electrical 
machinery (71489, 71499, 71871, 71877, 72847, 7311, 7313,5, 73144, 73151, 73153, 73161, 73165, 73312, 73314, 73316, 73733, 73735); and armaments (891).
  See Eurostat (2008h). 
 129 The total reported here refers only to extra-EC  trade (excludes intra-EC trade), but figures for 
individual Member States include intra-EC trade.  
130 Eurostat (2008h). European Communities WT/TPR/S/214/Rev.1 
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Table IV.13 
Trade in high-tech products, 2005 
 Exports Balance Imports 
 
€ million Percentage of 
total exports Annual 
average 
growth rate 
2002-05  
€ million  € million Percentage of 
total exports Annual 
average 
growth rate 
2002-05 
EC-27 197,837 18.8 1.7  -31,669  229,505 19.5 -1.3 
Austria 12,876 12.8 4.6  -307  13,184 12.9 1.6 
Belgium 18,943 7.1 1.4  -1,433  20,376 8.0 0.6 
Bulgaria 268 2.9 25.6  -828  1,096 8.8 17.0 
Cyprus 372 31.6 94.8  -315  687 13.5 14.5 
Czech Republic 7,324 11.7 24.5  -1,226  8,550 13.9 12.1 
Denmark 10,166 14.9 4.9  1,322  8,844 14.6 3.3 
Estonia 638 10.3 -5.9  -574  1,212 14.8 9.6 
Finland 11,701 22.1 0.0  3,832  7,870 16.6 1.9 
France 71,042 19.1 -4.7  4,259  66,783 16.5 -4.8 
Germany 115,405 14.8 3.7  10,304  105,101 16.8 0.8 
Greece 826 6.0 -2.7  -3,364  4,189 9.6 0.9 
Hungary 9,941 19.7 7.1  -309  10,249 19.2 8.1 
Ireland 26,036 29.5 -5.2  11,175  14,860 27.0 -6.2 
Italy 20,822 6.9 -1.3  -11,608  32,430 10.5 -0.6 
Latvia 133 3.2 24.0  -369  502 7.2 11.0 
Lithuania 304 3.2 25.3  -709  1,013 8.1 21.6 
Luxembourg 5,739 38.0 25.2  662  5,078 28.9 17.5 
Malta 930 50.8 -11.5  75  855 29.6 -12.7 
Netherlands 66,133 20.3 2.8  4,970  61,163 20.9 1.2 
Poland 2,299 3.2 18.7  -6,155  8,454 10.4 4.6 
Portugal 2,089 6.8 7.3  -3,240  5,329 10.8 2.8 
Romania 691 3.1 5.8  -2,317  3,009 9.2 10.3 
Slovakia 1,641 6.4 34.8  -1,583  3,224 11.6 23.3 
Slovenia 660 4.3 9.2  -502  1,162 7.1 3.6 
Spain 8,747 5.7 1.9  -15,148  23,895 10.3 3.3 
Sweden 14,264 13.6 -4.2  2,023  12,242 13.7 -3.5 
United Kingdom 68,406 22.1 -5.2  3,888  64,518 15.6 -6.9 
Source:  Eurostat (2007), High-tech statistics , Luxembourg. 
96. Given the EC's strong global profile, and that it is losing ground in the world market, open 
and fair trade is a key element of the EC's po licy in high-tech products. Creating an open and 
competitive global market and removing distortions to  trade (including TBTs) in high-tech products 
are at the centre of the EC's policy objectives. C ontinued innovation and investment, creating the right 
conditions for SMEs, and better observance and enfo rcement of intellectual property rights at the 
international level, are also elements of the EC's policy for the industry.131 
97. The EC is currently involved, as defendant, in  one dispute settlement case with Japan, the 
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and the United States on the 
tariff treatment of certain information technology products.132 
98. The Commission presented a proposal at the WTO, on 15 September 2008, to start 
negotiations to update and expand the Information Technology Agreement (ITA).133 
99. MFN tariffs on high-tech products are relatively low, averaging 0.8% in the case of office 
machinery; 1.1% on pharmaceuticals; 1.9% on elect rical motors and apparatus; 2.7% on electrical 
appliances; and 3.6% on radio, TV, and communicati on equipment (Table AIV.1). Some of the EC's 
countervailing measures are on pharmaceutical product s and electric systems (Chapter III(2)(vii)(c)). 
                                                      
 131 Eurostat (2008i). 
 132 WTO documents series WT/DS375, WT/DS376, and WT/DS377. 
 133 Europa Press Release IP/08/1321, 15 September 2008. WT/TPR/S/214/Rev.1 Trade Policy Review 
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(d) Basic metals 
100. The basic metals (iron and steel, aluminium, and other non-ferrous metals) subsector in the 
EC-27 registered value added of €69.1 billion in  2005 (4% of total manufacturing value added), 
generated a turnover of about €316 billion (5% of total manufacturing turnover), and employed almost 
1.1 million persons (3.3% of manufacturing employment)  (Table IV.14). The basic metals industry is 
highly capital- and energy- intensive, and de pendent on imports of ores and concentrates.134 Due to 
large capital requirements, large companies tend to dominate the subsector, especially in the case of 
primary aluminium and flat steel products. 
Table IV.14 
Selected basic metals statistics, 2005 
Value added Employment Turnover 
Subsector (€ billion) Share of total EC27 
manufacturing (%) Per employee    
(€ '000) Numbers Share of total EC27 
manufacturing (%) (€ billion) 
Iron and steel 48.84 2.99 62.05 748,200 2.29 220.32 
Aluminium 11.90 0.73 55.36 211,700 0.64 51.62 
Other non-ferrous metals 8.33 0.51 62.32 132,200 0.41 44.01 
Total 69.07 4.23 179.73 1,092,100 3.34 315.95 
Source:  European Commission (2008), Communication from the Commission to th e Council and the European Parliament 
 on the Competitiveness of the Metal Industries,  Brussels. 
101. The EC's basic metals subsector has recently benefited from a significant rise in world 
demand.135 Nonetheless, the EC is losing its share of world metals production, notably in aluminium 
(from 21% in 1982 to 9% in 2005), and steel (fro m 25% in 1982 to 16% in 2007), mainly due to 
rapidly increasing production in emerging economies. Th e new Member States have been particularly 
affected by the steel restructuring.136 Germany is the leading EC producer of steel (22.8% of the total 
in 2006), followed by Italy (15.3%), and France (9.6%) (Table IV.15).  Traditionally, the EC has 
enjoyed a trade surplus in steel (€4.2 billion in 2007, with €36.9 billion in  exports), whereas it has 
registered trade deficits in other metals, notably  unwrought aluminium (€11.3 billion in 2007, with 
€11.7 billion in imports), and unwrought copper, and copper alloys (€9.3 billion in 2007, with 
€10 billion in imports). 
102. The EC is in the process of elaborating a new ba sic metals policy on the basis of: (i) ensuring 
energy supply at competitive prices through well func tioning EC energy markets (section (4) above); 
(ii) creating conditions to allow the subsector to m eet the EC's environmental objectives and to adapt 
to the requirements of its climate change goals137; (iii) encouraging R&D and innovation and high 
                                                      
 134 Metals production is the first important upstream step in the value-added ch ain of many industries 
producing investment goods (e.g. mechanical engineering, automo tive, shipbuilding, aer ospace, construction), 
and consumer goods. Large investments are required in technology and equi pment, while energy costs represent 
up to 37% (e.g. aluminium and ferrous-alloys) in the cost structure of the metal produced. Many metallic minerals are being extracted in the EC in small volum es compared with global production, such as nickel 
(1.7%), iron ore (2%), and copper (5%). See European Commission (2008b). 
 
135 This has pushed prices up and improved the general financial situation of many companies, but has 
also posed challenges to other manufacturing industries using metal. 
 136 The restructuring of the EC steel industry during the 1980s and the beginning of the 1990s was 
aimed at improving labour productivity, restoring the viability of the EC steel sector, and fostering 
competitiveness. It involved employment reductions from 750,000 to less than 250,000 and permanent closures 
of production capacities of more than 60 million tonnes in the EC-15. In the case of new Member States, obsolete installations were closed or mode rnized. See European Commission (2008b). 
 
137 As large emitters of CO 2, the metals industries will be required to make a major contribution to 
climate change mitigation. While metals fall within th e scope of REACH, there ar e specific characteristics of 
such substances that require attention, including the assessment of metals incorporated into alloys.  European Communities WT/TPR/S/214/Rev.1 
 Page 129 
 
 
skills138; and (iv) creating open and competitive global ma rkets and removing distortions in trade in 
metals and raw materials.139 
Table IV.15 
Production of basic metals, 2006 
('000 tonnes) 
Source : European Commission (2008), Commission Staff Working Document, Accompanying the Communication from the 
Commission to the Council and the European Parliament  on the Competitiveness of the Metals Industries, 
Brussels.  
103. MFN tariffs on metals products are zero (tin and articles thereof) or relatively low, averaging 
0.2% and ranging up to 7% in the case of iron an d steel, and averaging 2.9% and ranging up to 10% 
on non-ferrous metals (Table AIV.1). Some of the EC's applied anti-dumping duties are on steel 
products (Chapter III(2)(vii)(b)). 
(e) Textiles and clothing 
104. The EC is the world's largest importer of textil es and clothing products, and exporter of textile 
goods; and ranks second in terms of exports of clothing products.140 In 2007, the subsector had over 
175,000 firms, employed about 2.5 million workers (8% of manufacturing's work force), and had a 
combined turnover of €211.3 billion (€208 billion in  2004). The EC's trade deficit in textiles and 
clothing increased from €30.8 million in 2004 to €42.9 million in 2007: imports amounted to 
                                                      
 138 The industry is seeking breakthrough technological solutions. For example, the project "Energy 
saving and ultra low CO 2 emissions on steel" gathers together 48 partners to tackle the challenge of cutting 
emissions by a target level of 50%. The first step is to run until 2009 and the second until 2014/15. 
 139 The Commission will continue to use all existing instruments to address trade practices in violation 
of international trade agreements, including opposing the use of export taxes on metals and raw materials (European Commission, 2008b). 
 
140 The competitive advantages of the EC in the subsector lie in high quality production in technical, 
aesthetic, and fashion-related terms; the development of highly demanded brands with a strong image; and the speedy, flexible, and reliable delivery of products. Country Steel Refined aluminium Refined cooper Refined nickel Slab zinc 
Austria  7,129 0 73 0 0 
Belgium  11,631 0 383 0 220 
Bulgaria 2,124 0 65 0 70 
Cyprus  0 0 0 0 0 
Czech Republic  6,862 0 0 0 0 
Denmark  0 0 0 0 0 
Estonia  0 0 0 0 0 
Finland 5,054 0 137 47 282 
France  19,852 440 0 14 210 
Germany  47,224 516 658 0 335 
Greece  2,416 165 0 18 0 
Hungary  2,089 0 0 0 0 
Ireland  0 0 0 0 0 
Italy  31,624 194 36 0 109 
Latvia  550 0 0 0 0 
Lithuania  0 0 0 0 0 
Luxembourg 2,802 0 0 0 0 
Malta  0 0 0 0 0 
Netherlands  6,372 326 0 0 221 
Poland  10,008 50 557 0 155 
Portugal  1,400 0 0 0 4 
Romania 6,263 258 20 0 40 
Slovenia  628 140 0 0 0 
Slovakia  5,093 157 0 0 0 
Spain  18,391 349 255 0 503 
Sweden 5,466 101 229 0 0 
United Kingdom 13,871 360 0 37 0 
EC-27 206,849 3,056 2,413 116 2,149 WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 130 
 
 
€78.9 million (€62.6 million in 2004), and exports to €36 million (€31.9 million in 2004). In 2007, 
China was the origin of 34.6% of textile and clothing imports (23.6% in 2004), while the United States was the market of 12.8% for EC's textiles and clothing exports (15.4% in 2004).
141 
105. Production in the EC's textiles and clothing subsector declined by 32% between 1996 and 
2006 (Chart IV.1). In 2005, value-added in the s ubsector amounted to €53.3 billion, i.e. 3.3% of 
manufacturing's value-added (Table IV.11). Since 1995,  there have been steady declines in both value 
added and employment, but accompanied by produc tivity gains. Because of its labour-intensive 
character, the subsector has around half the productivi ty of manufacturing, with textiles displaying 
much higher labour productivity than clothing, due  to respective capital intensity. Within the EC, 
productivity varies widely (it is lower than average in all new Member States), and there is strong 
regional concentration within Member States.142  
106. The textile and clothing subsector does not en joy any specific incentives. However, like any 
manufacturing industry, it may benefit from incentiv es listed in the guide of "Grants and Loans from 
the EC". In addition, it may take advantage of acti ons that specifically target sub-contracting activities 
(10-60% of total activities in the subsector).143 MFN tariffs on textiles, wearing apparel, and leather 
industries average 7.6%, with rates ranging up to 17% (Table AIV.1). 
107. The EC does not apply quotas on imports of textile and clothing products from WTO 
Members.  Certain textile products originatin g in China were subject to a double-checking 
surveillance system (export licence and import licence) until the end of 2008.144 The EC maintains 
bilateral trade agreements regarding textile produc ts with the following non-Members of the WTO:  
Belarus, Russian Federation, Serbia, and Uzbekistan .  On an autonomous basis, the EC continues to 
apply quantitative restrictions on imports of tex tiles to the Democratic People's Republic of Korea 
(Chapter III(2)(vi)(b)). 
(5) S ERVICES  
(i) Overview 108. Services are the dominant economic sector in  the EC, accounting for 69.5% of gross value-
added, 68.9% of employment, and 96% of the new jobs created in 2007.
145 The size of the sector 
varies considerably across Member States, and there is substantial dispersion of service price levels within the EC.
146 Moreover, the sector is the priority as regards the completion of the single market, 
accounting for only 20% of intra-EC trade, of wh ich more than half is tourism and transport.147 The 
low level of intra-trade in services can be partly  explained by the remaining barriers, such as 
monopolies that prevent the establishment of service providers from other Member States (e.g. postal 
services or energy utilities), and differences in regulation across Member States.148 
                                                      
 141 European Commission online information. Viewed at: http://ec.europa.eu/enterprise/textile/statistics 
.htm [12 November 2008].  
142 For example, northern Portugal and the Flanders textile district in Belgium account for close to 80% 
of their respective national textile and clothing employment (WTO, 2007). 
 143 Subcontracting is present in all areas of the textile s and clothing subsector, but it is of particular 
importance in the finishing, knitting, and clothing industries (WTO, 2007). 
 144 In 2005, the EC and China agreed to limit Chinese export growth of textile and clothing products 
until 2007 (WTO, 2007). 
 145 Eurostat (2008d). 
 146 The price dispersion shows that Member States, which had different starting points regarding 
service prices, are still in the process of converging  towards the best performers in the single market. 
 147 OECD (2007b). 
 148 The situation is made more difficult because nearly 90% of all SMEs in the EC are in services 
industries and SMEs normally cannot afford the extr a costs of engaging in cross-border activities. European Communities WT/TPR/S/214/Rev.1 
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109. The EC is the world's leading exporter and importer of commercial services, accounting for 
about one quarter of global exports and imports  (excluding intra-EC transactions) in 2007. 
Transportation services, travel, and other business (e .g. operational leasing services and miscellaneous 
business, professional, and technical services) made up 68% and 74% of total EC exports and imports, 
respectively. In 2007, the EC had a services surp lus of €88.4 billion (up from €46.4 billion in 2004), 
with the United Kingdom recording the largest surplus.149 
110. The Directive on Services in th e Internal Market (the "Services Directive" No. 2006/123/EC), 
adopted in December 2006, aims to set out a framewo rk for the creation of a genuine internal market 
for services by removing of many of the remaining regulatory and administrative hurdles between 
Member States by the end of 2009, on the basis of  two key elements: freedom to establish a business 
in another Member State, and freedom to provide cross-border services in other Member States.150 It 
builds on two of the four "fundamental freedoms" of the EC Treaty, i.e. the freedom of establishment 
and the free-movement of services.151 The Commission's original proposal contained the country of 
origin rule for the provision of cross-border servic es, which was designed to allow service providers 
to observe the laws of their own country when oper ating in a different EC Member State. However, 
this clause was rejected by the European Parliament due to, inter alia , concerns about possible abuses, 
and monitoring problems. The clause was replaced in  the final text of the Services Directive by a 
provision on the freedom to provide services.152 
111. The Services Directive covers a large part of  all economic activity in the EC, but does not 
include some subsectors subject to other EC initiativ es (i.e. non-economic services of general interest; 
financial services, such as banking, credit, insura nce and re-insurance, occupational or personal 
pensions, securities, investment funds and payments ; telecommunications; transport, including port 
services; services of temporary work agencies; hea lthcare; audiovisual; gambling; activities connected 
with the exercise of official authority; certain soci al services relating to social housing, childcare, and 
support of families and persons in need; private security services; and services provided by notaries 
and bailiffs appointed by an official act of government). The directive proposes, inter alia , mutual 
recognition between Member States for documents that  allow companies to provide services;  and the 
introduction of a "point of single contact" in each Member State, where service providers must be able 
to obtain information and to complete all the pr ocedures and formalities necessary to conduct business 
in that Member State by the end of 2009.153 The Commission regards the directive as the most 
important framework for reforms, since it is expected to boost GDP growth and employment.154 
Despite this, the Services Directive met heavy o pposition from various parties during its negotiation, 
in particular labour unions  fearing "social dumping".155 
                                                      
 149 Eurostat (2008d). 
 150 The deadline was set by the Lisbon Strategy.  
 151 The free movement of services has been one of the founding principles of  the EC since 1957. The 
relevant provisions of the EC Treaty remove restrictions to the provision of services between Member States, 
whenever a cross-border element is present.  
152 Under the Directive adopted, any barriers that rema in after the screening process and the application 
of the freedom to provide services principle, will still need  to be challenged country by country, rule by rule. As 
the legal process can be costly and slow, it will seldom  be worthwhile for service providers to do this. 
Therefore, according to the OECD, the Directive needs to be bolstered by quicker and cheaper remedies 
(OECD, 2007b).   
153 According to the auth orities, services activities can only be  subject to a non-discriminatory 
authorization scheme when this is justified by an overriding reason relating to public interest, and as long as that 
objective cannot be attained by less restrictive means.   
154 When the original services directive was being debated, conservative estimates were that full 
liberalization of services could boost GDP by 0.7% (OECD, 2007b). 
 155 Even though the free movement of workers is covered by other EC legislation and not by the 
Services Directive, fears have been expressed that the directive would prompt movement of workers from the WT/TPR/S/214/Rev.1 Trade Policy Review 
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112. The major developments in services since the last TPR of the EC include progress on the 
implementation of: (i) the financial services strategy 2006-10; (ii) the 2002 telecoms regulatory framework, and the adoption of the telecoms refo rm package in November 2007; (iii) the Postal 
Directive aimed at completing the internal market for postal services by 2010/2012; and (iv) the 
Action Plan for transport 2002-10.  However, many other services activities are not subject to a 
comprehensive internal market policy; these include tourism, distribution, construction, engineering 
and consultancy, certification and testing services, and employment agencies.
156 
113. Under the GATS, the EC scheduled commitm ents across virtually all major service 
categories, and ratified the GATS Fourth and Fi fth Protocols on basic telecommunications and 
financial services, respectively.157 The EC maintains MFN exemptions under Article II of the GATS. 
The existing GATS schedules and lists of MFN exemp tions of EC-12, EC-15, EC-25, and, where 
relevant, the individual schedules of the Member States, are being replaced with consolidated 
documents covering the EC-27.  The negotiati ons on the EC-25 consolidated schedule of 
commitments, pursuant to Article XXI (Modification of Schedules) of the GATS, were concluded in 
September 2006. Certification of the EC-25 sch edule was completed in December 2006, and the 
schedule will enter into force following the comple tion of the internal decision-making procedure of 
the EC and its Member States, where applicable.158 In the meantime, following the accession of 
Bulgaria and Romania, the EC ha s launched negotiations aimed at consolidating the EC-27 services 
commitments, pursuant to Article XXI of the GATS. The EC tabled its revised conditional offer in the 
ongoing services negotiations in June 2005.159 
114. The EC regime on trade in services with third (non-EC) countries is based on existing GATS 
commitments, as well as on regional and bilateral ag reements. Autonomous liberalization in trade in 
services may vary among Member States. In areas regulat ed at the EC level (e.g. telecoms), EC laws 
apply to the entire EC territory, whereas the legislat ion of individual Member States may co-exist in 
non-EC regulated services subsectors (e.g. education,  health). Individual Member States do not have 
competence in the negotiation of trade agreements in  services; this is the sole responsibility of the 
Community. The Commission can negotiate trade agreem ents to the extent that it has a mandate from 
the European Council. 
(ii) Financial services  
115. The EC is a key actor in world financial services. In 2006, it accounted for 60% of global 
foreign exchange markets (in terms of average da ily turnover); 52% of global banking assets; 38% of 
global insurance premiums; 34% of world debt  securities; and 26% of global stock market 
capitalization.160 About 4 million persons are employed in financial services in the EC;  financial 
intermediation generated €663 billi on in 2006, i.e. 5.8% of GDP.  The contribution of financial 
services to gross value-added is particularly high  in Luxembourg (over 35%), while in the other 
                                                                                                                                                                     
new to the old Member States, not least since the implementation of the Services Directive would coincide with 
the ending of transitional arrangements restricting migration flows from the new Member States (WTO, 2007). 
 156 These services activities are subject to the relevant provisions of the EC Treaty on the freedom to 
provide services and, where applicab le, also to the provisions of th e Services Directive (WTO, 2007). 
 157 See WTO (2004). 
 158 Prior to its enlargement, the EC-15 had individual schedules. As a result of enlargement, the 
schedules of the EC-15 as well as the ten new Member States were withdrawn and replaced by a consolidated 
EC-25 schedule, which was renegotiated and certified. The Schedules of commitments are contained in WTO 
document series S/C/W/273, and the notification of  certification is in WTO document S/L/286, 
18 December 2006. The consolidated and certified sche dule includes modifications made by the ten new 
Member States, as well as compensation provided by the EC. 
 159 WTO document TN/S/O/EEC/Rev.1, 29 June 2005. 
 160 European Commission (2007d). European Communities WT/TPR/S/214/Rev.1 
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Member States it ranges from 2% to  15%. The average annual growth of intra-EC trade in financial 
services was 14% during 2000-05. The EC's financial services are dominated by banks (accessing a bank account is the entry point for most cons umers), followed by insurance and securities. 
Nonetheless, one of the new features of the EC's financial services landscape is the emergence of 
major pan-European financial institutions a nd groups, combining banking, insurance, and 
securities.
161  
116. While wholesale markets are well integrated acros s the EC, retail financial markets (notably 
retail banking and mortgage market s) remain nationally fragmented162, with a number of competition 
concerns being identified.163 Furthermore, only some 5% of bank credit is granted across borders, and 
the variety of mortgage products is still limited in many Member States. A better functioning risk 
capital market is also required to promote new a nd innovative firms and to  raise economic growth, 
while the EC's major structural economic challenge , its pension's deficit, needs to be financed. 
117. The adoption and implementation of the  Financial Services Action Pl an (FSAP) 1999-05 was 
the main catalyst for accelerating the integration of wholesale financial markets, ensuring state-of-the-
art prudential rules and supervision,  and opening and securing retail markets.164 A new five-year 
financial services strategy was launched on 5 December  2005. Its motto is "dynamic consolidation", 
and its key objectives are to consolidate th e progress made under the FSAP 1999-05; enhance 
supervisory convergence and coopera tion; remove remaining barriers to fully integrate financial 
services markets; expand the EC's external influen ce in the world's financial markets; and implement 
a better regulation process based on open consultations, transpar ency, impact assessment, and 
evidence-based policy-making. Overall, the strategy aims to provide the most advanced legislative 
apparatus for EC financial service s providers, and to lower the cost of financing for all users of 
financial services.165 
118. Further integration, in particular in the equ ity market, is hindered by the fragmentation of 
national securities clearing and settlement systems. In response, a Code of Conduct on Clearing and 
Settlement was established in 2006 to improve their safety and efficiency and to lower their cost.166 It 
contains commitments in three areas: price tr ansparency; access and interoperability; and service 
unbundling and accounting separation.  The Commission has also adopted a directive to improve the 
transparency and legal certainty of the supervisory approval of acquisitions in banking, insurance, and 
securities.167 Other initiatives under the new financial servi ces strategy include: the introduction of the 
Single Euro Payments Area (SEPA) in 2008, aimed at  making cashless payments in euros as easy and 
                                                      
 161 Such as Deutsche Bank, HSBC, BNP, and ING. 
 162 The lack of integration of retail financial markets is reflected in significant price variations and the 
relatively low volume of cross-border transactions. This is due to cultural and consumer preferences, but also to differences in regulatory frameworks. Direct lending to consumers in other Member States is less than 1% of 
mortgage activity, mostly on holiday homes or  properties at the border (OECD, 2007b). 
 
163 These include: barriers and discriminatory rule s in payment cards; consumers in some Member 
States pay banks fees on payment card transactions that are three or four  times higher than in other Member 
States; close cooperation between banks, which may restrict competition, and possible tying practices (European 
Commission, 2007d).  
164 The main elements of the FSAP and other complementing measures are described in WTO (2004). 
 165 WTO (2007). 
 166 The reasons for the high cost of cross-border transactions are tec hnical, legal, and fiscal obstacles, 
e.g. double taxation of income flow s of associated companies established in different Member States. 
 167 Directive 2007/44/EC, 5 September 2007, amending Council Directive 92/49/EEC and 
Directives 2002/83/EC, 2004/39/EC, 2005/68/EC, and 2006/48/EC as regards procedural rules and evaluation 
criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector.  WT/TPR/S/214/Rev.1 Trade Policy Review 
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safe as within a single country, and enhancing competition in the EC payments markets168;  a White 
Paper on mortgage credit, publis hed in December 2007; and amendm ents to Decisions establishing 
the Committee of European Banking Supervisors (C EBS), the Committee of European Insurance and 
Occupational Pensions Supervisor s (CEIOPS), and the Committee of European Securities Regulators 
(CESR), to be adopted in 2009. 
119. The global financial market turmoil that em erged in August 2007, largely due to the sub-
prime mortgage crisis in the United States, reveal ed a number of weaknesses in the regulatory and 
supervisory framework worldwide. In response, in October 2007, the Ecofin Council endorsed a list 
of actions to be completed in  2008: enhancing transparency; im proving valuation standards; 
reinforcing prudential rules and risk management in the financial subsector; and improving market 
functioning. At the international level, some Member  States and their partners are to address specific 
issues, such as improving liquidity management of financial institutions.169 On 13 October 2008, the 
Commission published guidance on how Member States can best support financial institutions in the 
current financial crisis, while respecting EC stat e aid rules (Chapter III(4)(ii)). On 15 October 2008, 
the Commission adopted a proposal to amend the Deposit Guarantee Schemes Directive to increase 
the protection of individuals' deposits up to €100,000 and shorten the payout period to three days. On 
the same day, the Commission modified the EC acc ounting rules to help fina ncial institutions cope 
with problems resulting from mark-to-market valu ation of assets. A proposal for a Regulation on 
Credit Rating Agencies was adopted on 12 Novemb er 2008, establishing the conditions for the 
authorization, operation, and supervision of cred it-rating agencies in the EC. Further measures in 
response to the global financial crisis are expected. 
(a) Banking 
120. The number of credit institutions in the EC-27 declined from 9,054 in 2003 to 8,348 in 2007, 
mainly as a result of mergers and acquisitions, wh ile the number of branches went from 206,956 to 
233,581 during the same period. The number of pe rsons employed in banking went down from 
3.1 million in 2003 to 2.8 million in 2007. In 2007, a bout one quarter of the to tal number of EC banks 
were in Germany (2,026), followed by Italy (821),  France (808), and Austria (803), with Estonia 
having the lowest number (15).  The EC banks' total assets reached €41,072 billion in 2007, up from 
€26,605 billion in 2003 (Table IV.16) , or 334% of GDP, led by the United Kingdom (24.6% of the 
total), Germany (18.4%) and France (16.3%).170 
121. According to the ECB171, the most important developments in the EC banking subsector over 
the last few years include: consolidation has continued but there are signs of deceleration172; the 
overall number of mergers and acquisitions has b een declining since 2000, with the exception of 
                                                      
 168 The ultimate goal of SEPA is to create a ha rmonized and efficient pa yments area without any 
separation between cross-border and domestic payments.  
169 On 11 April 2008, the G7 meeting endorsed 67 recommendations in five areas: strengthening 
prudential oversight of capital, liquidity and risk management; enhancing transparency and valuations; changes 
in the role and uses of credit ratings; strengthening the authorities' responsiveness to risks; and dealing with 
stress in the financial system (European Central Bank, 2008b). 
 170 The increase in banks' total assets and the fall in the number of banks signal  the emergence of larger 
institutions. The European Central Bank (ECB) has identified 46 important banking groups accounting for 68% 
of the EC banking assets. The average return on equity for large banking groups increased from 17.2% in 2004 
to 19.6% in 2006. European Commission (2007d).  
171 European Central Bank (2008a). 
 172 In some Member States, domestic consolidation among large banks may be gradually coming to an 
end since the respective banking markets are already very  concentrated. Therefore, cross-border consolidation 
has become the main expansion strategy, despite the remaining barriers. European Communities WT/TPR/S/214/Rev.1 
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cross-border deals between EC banks in third countries173; concentration, as measured by the 
weighted average of the Herfindahl-Hirschman Index (HHI), rose from 545 in 2003 to 628 in 2007174; 
domestic credit institutions continue to account for the majority of the EC's banking assets, with a 
market share of 71.3% in 2007 (down from 73.4% in 2005)175; branches are being redesigned in terms 
of location and services to become more cost-efficien t and better integrated into the new distribution 
channels used by banks176; and, while the structure of banks still varies significantly within the EC, 
the gap between Member States is closing.177 
Table IV.16 
Number of banks and total assets, 2003-07 
 Number of banks  Total a ssets of banks (€ billion) 
 2003 2004 2005 2006 2007  2003 2004 2005 2006 2007 
EC-27 9,054 8,908 8,689 8,514 8,348  26,605 29,160 33,159 37,101 41,072 
Euro area 6,623 6,427 6,271 6,157 6,128  18,910 20,454 22,671 24,962 28,313 
Austria 814 796 818 809 803  586 635 721 790 891 
Belgium 108 104 100 105 110  829 914 1,055 1,122 1,298 
Bulgaria 35 35 34 32 29  9 13 17 22 31 
Cyprus 408 405 391 336 215  42 47 61 75 91 
Czech Republic 77 70 56 57 56  78 87 101 115 140 
Denmark 203 202 197 191 189  569 629 746 822 978 
Estonia 7 9 11 14 15  6 9 12 15 21 
Finland 366 363 363 361 360  186 212 235 255 288 
France 939 897 854 829 808  3,999 4,419 5,073 5,728 6,682 
Germany 2,225 2,148 2,089 2,050 2,026  6,394 6,584 6,827 7,121 7,562 
Greece 59 62 62 62 63  213 230 281 315 383 
Hungary 222 217 214 212 206  55 68 78 94 109 
Ireland 80 80 78 78 81  575 723 942 1,178 1,337 
Italy 801 787 792 807 821  2,125 2,276 2,509 2,793 3,332 
Latvia 23 23 25 28 31  8 11 16 23 31 
Lithuania 71 74 78 78 80  6 9 13 17 24 
Luxembourg 169 162 155 156 156  656 695 792 840 915 
Malta 16 16 19 18 22  18 21 27 30 38 
Netherlands 481 461 401 345 341  1,474 1,678 1,695 1,873 2,195 
Poland 660 744 730 723 718  112 142 163 190 236 
Portugal 200 197 186 178 175  349 345 360 397 440 
Romania 39 40 40 39 42  15 23 35 52 72 
Slovakia 22 21 23 24 26  24 31 38 42 50 
Slovenia 33 24 25 25 27  22 24 30 35 43 
Spain 348 346 348 352 357  1,503 1,717 2,149 2,516 2,945 
Sweden 222 212 200 204 201  519 600 653 774 846 
United Kingdom 426 413 400 401 390  6,288 7,085 8,527 9,869 10,093 
Source:  ECB (2008), EU Banking Structures October 2008 , Frankfurt. 
                                                      
 173 Mainly China (P. R.), Croatia, Russian Federation, Serbia, Turkey, Ukraine, and the United States.  
 174 The HHI is far below the threshold of 2000, which is generally regarded as an indication of a highly 
concentrated market. Nonetheless, in some Member Stat es, the HHI is close to, or over 2000, i.e. Belgium, 
Estonia, Lithuania, the Netherlands, and Finland. The banking subsector in the majority of the new Member 
States is more concentrated than in other EC members (European Central Bank, 2008b). 
 175 In 2007, foreign branches and subsidiaries from  other Member States and third countries accounted 
for 14.2% and 14.5% of total assets, respectively. Howe ver, there are big differences among Member States, 
with foreign branches and subsidiaries controlling over  60% of total assets in the new Member States. The 
banking system is almost entirely fo reign-owned in the Czech Republic, Es tonia, Lithuania, and the Slovak 
Republic (European Central Bank, 2008a). 
 176 This also includes an increasing use of electronic channels, notably internet banking (21% of 
individuals in the EC used internet banking in 2006, up from 16% in 2004), and cooperation with third parties, 
such as retailers, financial companies, and financial agents/services groups. 
 177 According to the ECB, these differences (e.g. in terms of concentration, ownership structure, foreign 
presence, fees on banking products) are expected to diminish gradually both as a consequence of increased 
mergers and acquisitions, and due to th e increasing importance that banks have been attaching to the creation of 
shareholder value. In the long-term, this might affect EC banks' performa nce and risk-return trade-offs, with a 
possible bearing on the capacity of banks to absorb shocks. WT/TPR/S/214/Rev.1 Trade Policy Review 
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122. The revised framework for the Internationa l Convergence of Capital Measurement and 
Capital Standards (Basel II178) was released in June 2004. Basel II has been introduced into EC 
legislation by recasting the Codified Banking Dir ective and the Capital Requirements Directive.  
Member States have amended national law to incor porate the new rules, which became applicable 
from 2007.  Nonetheless, the legal framework needs to  be complemented by strong regulatory 
cooperation and convergence across borders and sectors.179 On 1 October 2008, the Commission 
adopted a proposal to amend the Capital Requi rements Directives, covering large exposures, 
supervision of cross-border groups, quality of banks' capital, and ri sk management. The amendments 
are aimed at strengthening the regulatory framework for EC banks in response to the financial crisis. 
123. The Committee of European Banking Superv isors (CEBS), which began operating on 
1 January 2004, to help improve EC  financial market regulation, is  tasked with: providing advice to 
the European Commission on EC legislation in th e banking subsector; contributing to consistent 
implementation of EC legislation; and promo ting convergence of supervisory practices and of 
cooperation between supervisors. Following the a doption of the Capital Requirements Directive 
(CRD)180, the CEBS is to engage increasingly in m onitoring the application of its guidelines on 
implementation of the CRD, and in furthering c onvergence of supervisory practices across the EC. 
124. Regulation of the banking system in the EC  is based on the single European passport 
principle, and prudential supervis ion of banks is according to th e home-country control principle.181 
Member States must not apply more favourable EC provisions to foreign bank branches than those 
applied to branches of credit institutions with thei r head office within the EC. However, the EC may 
agree to apply identical provisions to branches w ith their head office within or outside the EC.182 In 
addition, banks are subject to EC rules on competition and state aid (Chapter III(4)(ii)). 
125. Banking secrecy is not regulated by EC law, but is  left to the discretion of its Member States. 
Banks are required to treat their customers' affairs as confidential or secret towards ordinary third parties and without time limit. In some Member St ates (i.e. Belgium, Germany, Hungary, Italy, the 
Netherlands, and the United Kingdom), bank secrecy is  based purely on the relationship between the 
bank and its customer (e.g. contract, common law), whereas it has been rein forced by statute in 
Austria, Cyprus, Czech Republic, Denmark, Finl and, France, Greece, Luxembourg, Malta, Poland, 
Portugal, Slovak Republic, Spain, and Sweden.
183 
126. Under the EC Savings Directive, which beca me applicable on 1 July 2005, each Member 
State provides information automatically to others  on interest paid from that Member State to 
individuals who are resident for tax purposes in the others.184 For a transitional period, Austria, 
                                                      
 178 Basel II is a global regulatory framework designed to encourage best practices in risk management 
and minimum capital requirements in banking.  
 179 European Commission (2007d). 
 180 The CRD, adopted in June 2006, implements Basel II for credit institutions and investment firms. 
 181 According to the principle of home-country control, banks in the EC are regulated by, and conform 
to, the regulation and legislation of their home country. If a bank does business in another Member State, the 
regulatory authorities of the host country recognize the pr imacy of the home country. According to the "single 
passport", a bank licensed to do business in any Member State is allowed to do business in any other Member 
State on whatever basis it considers most advantageous. Banks, including foreign banks, may establish branches or subsidiaries, or may acquire other banks, in other Member States. Subsidiaries thus incorporated in a Member 
State can then have a sub-branch – or provide banking services directly – in another Member State, while 
remaining under the regulatory/supervisory control of the Member State where they are incorporated.  
182 Directive 2006/48/EC, Article 38. 
 183 In general, statutory provisions on bank secrecy in EC members are of general application, i.e. are 
not limited to particular customers or market segments (OECD, 2008b).  
184 Directive 2003/48/EC. European Communities WT/TPR/S/214/Rev.1 
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Belgium, and Luxembourg are allowed to apply a w ithholding tax instead of providing information, at 
a rate of 15% for the first three years, 20% fo r the subsequent three years and 35% thereafter. 
Belgium is to switch to exchange of inform ation before the withholding rate reaches 35%.185  
127. Agreements were also signed with five non- EC countries (Andorra, Liechtenstein, Monaco, 
San Marino, and Switzerland) for the application, in  such countries, of equivalent measures to those 
applied in the EC. The same measures as those of  the Savings Directive are also applied by ten 
dependent or associated non-EC territories throug h bilateral agreements concluded by each EC 
Member State with those territories, i.e. Angu illa, Aruba, the British Virgin Islands, the Cayman 
Islands, Guernsey, the Isle of Man, Jersey, Mont serrat, the Netherlands Antilles, and the Turks and 
Caicos Islands. With the aim of ensuring a level playing field throughout the world, the Commission 
has launched discussions with Hong Kong (China), Singapore, and Macao (China), while negotiations 
with Norway are to start soon.186 
128. The EC and its Member States support the UN Global Programme against Money 
Laundering.  The European Commission and some Member States are parties to the Financial Action 
Task Force (FATF).187 The EC and/or some of its Member St ates are parties to the Convention on 
Laundering, Search, Seizure and Confiscation of the Proceeds of Crime (Strasbourg Convention of 
8 November 1990); the UN Convention against Transn ational Organized Crime (Palermo Convention 
of 15 November 2000); the 1999 International Conv ention for the Suppression of the Financing of 
Terrorism; and the Select Committee of Expert s on the Evaluation of Anti-Money-Laundering 
Measures (also known as Moneyval). 
(b) Insurance 
129. In 2007, there were around 5,300 insurance companies in the EC (some 5,000 in 2004), with 
1.3 million people employed in the insurance and pension fund subsector.188 Insurance firms wrote 
€1,122 billion of gross premiums in 2007 (exc luding reinsurance), up from €764 billion in 2001, 
making the EC insurance market the largest in th e world, followed by the United States and Japan.189 
Life and non-life insurance represen ted 68% and 32%, respectively, of total direct gross premiums in 
2007.190 On a per capita basis, average spending on li fe insurance is highest in the United Kingdom; 
average spending is more uniform in the non-life area.  Total assets under management by insurance 
corporations rose from €5,736 billion in 2003 to  €6,960 billion in 2007, while total assets under 
management by investment funds increased from €3,921 billion to €6,780 billion over the same 
period (Table IV.17). 
130. The EC insurance market is partly integrated : consumers and smaller businesses are generally 
confined within their national market, and theref ore would benefit from more competition;  while on 
the supply side, large insurance companies, in  some cases belonging to pan-European groups, 
compete at a multi-domestic level. In life insurance,  the average market shar e of the five largest 
insurance groups was 54.7% in 2005 (4 3.9% in 1995);  non-life insurance is slightly less concentrated 
                                                      
 185 OECD (2007c). 
 186 According to the authorities, the key objective is to  promote the adoption, by these jurisdictions, of 
measures equivalent to the EC Directive on taxation of savings income. 
 187 The FTAF, created in 1989, is  an intergovernmental body aime d at developing and promoting 
national and international policies to combat mone y laundering and terrorist financing (FTAF online 
information. Viewed at: http://www.fatf-gafi.org /pages/0,2987,en_32250379_32235720_1_1_1_1_1,00.html). 
 188 Classification of Economic Activities in the EC (NACE) Division 66 of Eurostat. 
 189 The insurance subsector of many new Member States is underdeveloped in terms of premium per 
capita, but the demand for insurance products is exp ected to raise during th e integration process. 
 190 The aggregate return on equity for life was 14.7% in 2005 (almost unchanged since 2004), while the 
return on equity for non-life increased from 11.9% in 2004 to 13.1% in 2005 (European Commission, 2007d). WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 138 
 
 
with the five-firm market share at 52.4%.191 EC insurance companies are substantially more 
internationally oriented than banks, with ten out of the top fifteen insurance groups earning most of 
their premiums in foreign countries.192 Moreover, EC reinsurance companies had 46% share of the 
global market (in terms of gross reinsurance premiums) in 2005.  Life insurance products are mostly 
distributed via "bancassurance" networks, while non- life products are largely distributed via agents 
and brokers. 
Table IV.17 
Total assets under management by insurance corporations and by investment funds, 2003-07 
(€ billion) 
 Total assets under management by insurance 
corporations Total assets under management by investment funds 
 2003 2004 2005 2006 2007  2003 2004 2005 2006 2007 
EC-27 5,736 6,217 7,130 7,591 6,960  3,921 4,435 5,580 6,488 6,780 
Euro area 3,263 3,542 3,915 3,922 3,718  3,421 3,832 4,791 5,550 5,779 
Austria 64 68 77 83 88  109 123 153 166 161 
Belgium 140 164 185 202 ..  84 95 110 124 118 
Bulgaria .. 0.3 0.4 0.6 0.8  .. .. .. .. 0.5 
Cyprus 4 4 5 .. ..  0.5 0.4 0.7 1 1 
Czech Republic 7 8 10 10 11  3 4 5 3 4 
Denmark 108 124 146 153 163  49 77 107 124 137 
Estonia 0.2 0.3 0.5 0.6 0.8  0.2 0.3 0.6 1 1 
Finland 42 44 50 52 57  15 22 33 46 49 
France 946 1,029 1,152 1,281 1,357  703 799 943 1,156 1,201 
Germany 1,060 1,092 1,139 1,023 1,018  827 862 975 1,029 1,054 
Greece 10 11 15 18 19  14 16 22 17 13 
Hungary 4 5 6 7 9  3 3 5 7 9 
Ireland 74 92 121 .. ..  225 282 394 482 516 
Italy 384 445 508 575 531  319 321 350 341 291 
Latvia 0.2 0.2 0.3 0.3 0.5  0.04 0.05 0.09 0.08 0.2 
Lithuania 0.4 0.4 0.5 0.8 0.9  0 0.04 0.1 0.2 0.3 
Luxembourg 33 40 50 61 ..  818 975 1,426 1,726 1,933 
Malta 0.6 0.8 1 1 1  0.8 1 1 1 1 
Netherlands 294 316 345 332 342  97 98 105 114 100 
Poland 12 17 21 26 33  7 9 16 26 37 
Portugal 32 36 43 49 53  28 31 37 41 40 
Romania 0.5 0.6 1 1 2  0.6 1 2 3 4 
Slovakia 2 2 3 4 5  .. 0.1 2 2 2 
Slovenia 2 2 3 3 4  1 2 2 3 4 
Spain 182 204 228 243 249  179 208 240 306 298 
Sweden 195 214 240 267 276  93 117 145 161 165 
United Kingdom 2,139 2,296 2,780 3,196 2,740  342 389 505 609 637 
.. Not available. 
Source:  ECB (2008), EU Banking Structures, October 2008 , Frankfurt.  
131. Insurance undertakings have also benefited from the single passport since 1994. The EC has 
two objectives in the subsector:  to provide all EC citizens with access to the widest possible range of 
insurance products on offer in the EC, while guara nteeing them the legal and financial protection 
required;  and to guarantee that an insurance comp any authorized to operate in any of the Member 
States can pursue its activities throughout the EC, in terms of the rights to establish and to supply services.  In order to achieve these objectives, th e EC has dealt with life insurance and non-life 
insurance separately to take account of their speci fic characteristics.  In addition, it has separate 
legislation on specific areas:  motor-vehicle lia bility insurance, annual accounts and consolidated 
accounts of insurance undertakings, legal protection insurance, and credit and suretyship insurance.
193 
                                                      
 191 There are wide differences among Member States in terms of concentration, with the five largest 
insurance groups in smaller markets, such as the Baltic countries, having a share of more than 85% (European 
Commission, 2007d). 
 192 However, the relative importance of cross-border mergers and acquisitions has fallen recently, 
which may explain why the consolidation process has been accompanied by a falling market share of foreign 
companies. 
 193 See European Commission online information. View ed at: http://ec.europa.eu/internal_market/insu 
rance/index_en.htm. European Communities WT/TPR/S/214/Rev.1 
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132. The key legislative development in the subsect or during the review period was the adoption, 
in July 2007, of the Insurance Solvency II pr oject, which aims to overhaul EC regulation and 
supervision, in order to bring it more into line w ith international developm ents in supervision and 
financial reporting, including Basel II rules fo r banks. Risk-based calculations of the solvency 
requirements for insurance undertakings are to be  introduced, and calculation of insurance liabilities 
(technical provisions) will be harmonized, while fo stering the convergence of supervisory practices. 
The Commission aims to have Solvency II in operation in 2012.194 
133. The EC Insurance Directives rules regarding third country insurance undertakings cover only 
the establishment of branches and agencies in the EC. The freedom to provide services in third 
countries is not regulated at EC level. Matters not dealt with in EC legislation remain within the 
competence of the Member States, subject to the general provisions of the EC Treaty.  The EC 
Directives specifically prohibit Member States from in troducing price controls, i.e. Member States are 
not allowed to require prior approval or systematic  notification of policy conditions in their national 
provisions. 
(c) Securities 
134. The stock exchanges of five Member St ates – London Stock Exchange (LSE), NYSE 
Euronext195, Deutsche Börse, Borsa Italiana, and Eur onext Amsterdam – are among the world's ten 
largest in terms of market capitalization.196 The value of equity market capitalization in the EC 
totalled US$16.3 trillion at the end of 2007, compar ed with US$19.9 trillion in the United States. The 
cross-country dispersion of the equity returns in the EC has dropped significantly since 2000, and 
during 2004-07 the average difference between the index returns went from around 4.5% to 21.5%. Consolidations involving some leading European exch anges have continued in recent years, even in a 
wider trans-Atlantic context.
197 
135. The EC's single securities market was to be completed in 2004.198 To fulfil this objective, the 
Markets in Financial Instruments Directive (MiFID ) was adopted on 27 April 2004, but only entered 
into force on 1 November 2007 replacing the 1993 Inv estment Services Directive. All Member States, 
except Poland199, have fully transposed the MiFID and its  implementing directive. The MiFID gives 
investment firms an effective singl e passport, allowing them to opera te throughout the EC on the basis 
of authorization in any Member State. It also aims  to ensure that investors enjoy a high level of 
protection when employing investment firms, wherev er they are located in the EC, and to establish a 
comprehensive regulatory framework governing, inter alia , investor transactions by exchanges. 
                                                      
 194 Under Solvency II, insurers would be required to take account of all types of risk to which they are 
exposed and to manage those risks more effectively. Insurance groups would have a dedicated "group supervisor" that would enable better monitoring of the group as a whole. 
 
195 Euronext Paris and the NYSE were merged on 4 April 2007. The new group, called NYSE 
Euronext, is the world's biggest global stock exchange.  
196 The EC stock market is highly concentrated, with  the five largest stock exchanges having a market 
share of 85% in terms of capitaliza tion, and over 90% on the basis of trading activity in 2006 (European 
Commission, 2007d). 
 197 The Nordic and Baltic stock exchanges merged between 2004 and 2006 creating OMX Nordic 
Exchange. In 2007, Borsa Italiana accepted a takeover from the London Stock Exchange; and the New York-
based International Securities Exchange announced its acquisition by Deutsche Börse. In February 2008, 
Nasdaq acquired OMX. 
 198 This deadline was agreed during the Stockholm European Council meeting of March 2001, 
following the presentation, on 15 February 2001, of the final report of the Committee of Wise Men chaired by 
Alexandre Lamfalussy. The report criticized the legisla tion for being complex and ill-adapted to requirements, 
owing to the lack of harmonization.   
199 Poland's relevant law is pending formal approval. WT/TPR/S/214/Rev.1 Trade Policy Review 
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MiFID is also expected to increase competition among exchanges, multilateral trading facilities, and 
investment firms.200 In this respect, according to the aut horities, some changes have already taken 
place, notably a significant number of multilateral trad ing facilities have entered the market with the 
aim of increasing competition in trad ing on the European equity market. 
136. Mutual funds (UCITS) are also under the single passport regime, and new UCITS rules 
entered into force (UCITS III Directive) in 2004, to make UCITS more competitive.201  However, a 
single market for investment funds is still to be  completed, as only 14% were considered "true" 
crossborder funds in 2005 (38% of net inflows). As a result, in July 2007, the Commission proposed to increase the efficiency of the current legislativ e framework by: (i) removing administrative barriers 
to the cross-border distribution of UCITS in order to reduce costs
202; (ii) creating a framework for 
mergers between UCITS funds and allow the use of master-feeder structures to promote savings and 
economies of scale 203; (iii) replacing the Simplified Prospectus by a new concept of Key Investor 
Information (KII)204; and (iv) improving cooperation mechan isms between national supervisors.  Total 
assets under management in UCITS went from €4, 436 billion in 2004 to €6,490 billion in 2006 
(Table IV.17), i.e.  half of the EC's GDP and 11.5% of Europ ean household financial assets. Currently, 
40% of the new sales of UCITS take place in third countries, mainly Asia, the Gulf region and Latin 
America. If the proposal is adopted by the EC Coun cil of Ministers and the European Parliament in 
the second quarter of 2009, its provisions are expected to come into force in mid-2011.205 
(iii) Telecommunications and postal services 
137. The EC's telecommunications ser vices market, valued at €347.2 billion, is roughly on a par 
with the United States market. The subsector acc ounts for 4% of EC jobs, and investments in 
telecoms by incumbents and new mark et entrants was €46.4 billion in 2007206, also on a par with the 
United States. However, the situation across Member  States remains uneven in terms of main fixed 
telephone lines, cellular mobile subscribers, an d internet users (including through broadband 
penetration) (Table IV.18).207 Since 2000, the EC's weighted aver age charge for a three-minute fixed 
local call has decreased by 39%, while that of a ten- minute call has fallen by 44%. There is very little 
difference in telecoms prices between old and new Member States.208 
                                                      
 200 For investment firms based or active in some of the Member States where transposition of MiFID is 
under way, transitional arrangements have been made by the CESR to ensure that business based on the old 
Investment Services Directive passport can continue (Europa Press Release IP/07/1625, 29 October 2007).  
201 WTO (2007), p. 116. 
 202 The EC funds are, on average, fi ve times smaller than US funds an d the cost of managing them is 
twice as high as in the United States;  red tape and burdensome notification procedures in the EC cost around €45 million. The new notification procedure will be reduc ed to a simple, electronic, regulator-to-regulator 
communication (Europa Press Release IP/07/1625, 29 October 2007). 
 
203 It is estimated that these new management opportunities will allow UCITS to make up to €6 billion 
in savings and economies of scale. 
 204 KII will be a simple document giving key facts to investors in a clear manner, to assist them in 
making an informed investment decision. 
 205 Europa Press Release IP/08/1161, 16 July 2008. 
 206 This figure does not include the Czech Republic, due to lack of data. 
 207 On average, about 28% of the EC population in rural areas, do not have broadband access, while 
10% of EC citizens still have no broadband access at all (Europa Press Release IP/07/ 1677, 13 November 2007). 
 208 European Commission online information. Viewed at: http://ec.europa.eu/information_society/doc/ 
factsheets/tr9-listofmarket s.pdf [11 August 2008]. European Communities WT/TPR/S/214/Rev.1 
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138. Competition in the EC's fixed voice market is  still based largely on indirect access to 
wholesale products, such as carrier-preselection (CPS) and carrier-selection (CS)209;  only 13.5% of 
the subscribers used an alternative network infr astructure in July 2007. In the mobile market, 
competition has increased, with new players in the market.   
Table IV.18 
Selected telecommunica tions indicators, 2007 
 Main fixed 
telephone 
lines 
('000) Main fixed 
telephone 
lines per 100 
inhabitants Cellular 
mobile 
subscribers 
('000) Cellular 
subscribers 
per 100 
inhabitants  
 
Internet 
users ('000) Internet 
users per 
100 
inhabitants  
Broadband 
subscribers 
('000) 
Austria 3,374.0 40.36 9,768.0 116.83 4,227.0 51.16 1,577.0 
Belgium 4,667.6 44.63 10,230.5 97.83 5,220.0 49.92 2,715.3 
Bulgaria 2,300.0 30.11 9,897.4 129.57 1,898.6 24.85 563.4 
Cyprus 376.0 43.99 962.2 112.59 380.0 44.46 81.0 
Czech Republic 2,887.6 28.28 13, 074.7 128.36 4,400. 0 43.2 1,625.0 
Denmark 2,823.6 51.89 6,242.6 114.71 3,500.0 64.31 1,977.4 
Estonia 495.5 37.11 1,981.8 148.42 780.0 58.41 277.8 
Finland 1,740.0 32.97 6,080.0 115.22 3,600.0 68.22 1,759.0 
France 34,800.0 56.45 55,358.1 89.80 30,100.0 49.57 15,550.0 
Germany 53,750.0 65.07 97,151.0 117.62 42,500.0 51.45 19,800.0 
Greece 6,227.3 55.87 11,997.3 107.63 2,540. 0 22.79 1,017.5 
Hungary 3,250.6 32.41 11,029.9 109.97 4,200.0 41.88 1,510.0 
Ireland 2,112.0 49.11 4,940.0 114.86 1,708.0 39.71 705.3 
Italy 26,890.3 46.25 78,571.0 135.14 32,000.0 54.35 10,860.0 
Latvia 644.0 28.28 2,217.0 97.36 1,176.8 51.68 146.1 
Lithuania 799.4 23.58 4,912.1 144.90 1,333.2 39.33 507.6 
Luxembourg 248.2 53.20 604.2 129.50 345.0 73.95 112.7 
Malta 198.1 48.72 371.5 91.38 158.0 38.86 61.4 
Netherlands 7,334.1 44.67 17,300.0 105.91 15,000.0 91.36 5,507.0 
Poland 10,336.3 27.14 41,388.8 108.68 16,000.0 42.01 2,911.2 
Portugal 4,138.9 38.96 13,413.0 126.26 3,549.0 33.41 1,607.5 
Romania 4,300.0 20.06 22,875.1 106.70 12,000.0 55.98 2,132.3 
Slovak Republic 1,150.7 21.35 6,068.1 112.58 2,350.0 43.6 443.8 
Slovenia 857.1 42.83 1,928.4 96.35 1,300.0 64.95 344.8 
Spain 18,583.3 41.97 48,813.0 110.24 19,690.0 44.47 7,944.7 
Sweden 5,506.0 60.38 10,371.0 113.73 7,000.0 76.76 3,131.0 
United Kingdom 33,682.1 55.43 71,992.5 118.47 40,200.0 66.15 15,528.7 
Source: ITU (2008), Telecommunications Indicators , Geneva.  
139. The EC's telecoms regulatory framework has not  changed since its last review and still is 
based on the regulation of markets rather than of technologies, and is aimed at, inter alia , establishing 
a harmonized regime across Member States; prom oting more competitive markets as a means to 
promote innovation and investment; applying tech nology-neutral regulation; and guaranteeing basic 
consumer interests, in areas such as universal services, processing of personal data and rights to 
privacy. It consists of six directives210, and other legislative instruments including: a Commission 
Recommendation that proposes a reduced number of re levant markets to be analysed by national 
                                                      
 209 CPS and CS services allow customers to use an alternative operator for calls, while still using the 
access line provided by the incumbent operator. Thus, direct access competiti on, where the alternative operator 
provides services through its own networ k (e.g. cable), is still relatively weak. 
 210 In 1999, the Commission launched a major review of the telecoms subsector that resulted in the 
adoption of a new regulatory framework in March 2002. The deadline for implementing it was 25 July 2003 for 
EC-15, 1 May 2004 for the ten new Member States, an d 1 January for Bulgaria and Romania. Most Member 
States have notified to the Commission their telecoms market reviews, as required by the new regulatory 
framework (WTO, 2007). WT/TPR/S/214/Rev.1 Trade Policy Review 
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regulatory authorities (NRAs)211; Commission guidelines on market analysis and the assessment of 
SMP, which set out a common methodology and prin ciples for the NRAs charged with these tasks212; 
the EC Roaming Regulation, which entere d into force on 30 June 2007, to ensure, inter alia , that 
roaming charges are reduced by 60% as of 1 July 2009213; and the Commission recommendation on 
relevant product and service markets susceptible to ex ante regulation adopted on 17 December 2007.  
140. Four institutions continue to be in charge of the management, implementation, and further 
development of the telecoms regulatory framewo rk:  the Communications Committee; the Radio 
Spectrum Committee;  the European Regulator s Group (ERG); and the Radio Spectrum Policy 
Group.214 
141. On 13 November 2007, the Commission tabled the Telecoms Reform Package recognizing 
that, inter alia , the telecoms regulatory framework has fa iled to reach its full potential and risks 
falling behind; competition bottlenecks persist, in particular on the broadband segment; and the radio 
spectrum is under-utilized. The package is being debated in the European Parliament and by Member 
States in the Council215;  it is expected to become law by end-2009, and to be in place as from 2010.216 
142. EC postal turnover amounted to €57.4 billion in 200 6 (latest available figures), i.e. 0.49% of 
GDP (€58.4 billion in 2004, or 0.55% of GDP), with the subsector providing 1.1 million jobs.217 The 
number of letter boxes, post offices, letter volum es, and public tariffs (for which only minimum 
guidelines are specified at EC level) vary widely  between Member States. In 2006, there were 
143,649 post offices in the EC, led by Germany (23.4%  of the total), while the average price of a 
standard 20g letter (first class, domestic service) was €0.52, ranging from €0.14 in Romania to €0.70 
                                                      
 211 Recommendation 2007/879/EC. The objective is to regulate less, but more effectively, by reducing 
regulation where competition has already delivered result s, and address the main bottlenecks. The relevant 
markets to be regulated have fallen from 18 to 7 by removing: national/local residential telephone services from 
a landline; international residential telephone services from a landline; national/local business telephone services from a landline; international business telephone servi ces from a landline; the mini mum set of leased lines;  
transit services in the fixed telephone network; wh olesale trunk segments of leased lines; access and call 
origination on mobile networks; international roaming on mobile networks; and broadcasting transmission. The 
markets that have remained under regulation because competition is not yet effective and where consumer 
benefits are still largely lacking are: access to the fi xed telephone network; ca ll origination on the fixed 
telephone network; call termination on individual fixed teleph one networks; wholesale access to the local loop; 
wholesale broadband access; wholesale terminating segments of leased lin es; and voice call termination on 
individual mobile networks. 
 
212 National regulators, in cooperation with the Commission, monitor the regulatory regime, along with 
the national competition authorities, and ensure that rules are applied consistently in all Member States. 
 213 Consumers under the Eurotariff save, on average, 36.4% for outgoing calls, and 42.9% for incoming 
calls, compared with prices for EC roaming services in early 2007. Th e Commission has recently proposed to 
extend the scope of this regulation to cover SMS and da ta roaming services (Europa  Press Release, IP/08/136, 
23 September 2008). 
 214 WTO (2007). 
 215 For information on the telecoms reform package proposals see European Commission online 
information.  Viewed at:  http://ec.europa.eu/information_society/newsroom/cf/itemlongdetail.cfm?item_id=372 3. For progress in its adoption s ee: http://ec.europa.eu/information_soc iety/policy/ecomm/tomorrow/next/index 
_en.htm. 
 
216 Europa Press Release IP/07/1677, 13 November 2007. 
 217 Additional revenues of approximat ely €150 billion, and 3.5 million j obs come from postal-related or 
induced services (e.g. direct mail creation and printing services). European Commission online information. 
Viewed at: http://ec.europa.eu/internal_market/post/doc /legislation/assessment-summary_en.pdf [11 November 
2008]. European Communities WT/TPR/S/214/Rev.1 
 Page 143 
 
 
in Finland.218 Routing times for domestic priority mail delivered next day, as a percentage of total 
domestic mail, range from 63.6% in Cyprus to 96.6%  in the Netherlands. There are big differences 
with regard to mail volume developments between  Member States. Addressed mail volumes in the 
twelve Member States that joined the EC in 2004 and 2007 grew, on average, by 6.5% over 2004-06. 
In the other Member States, addressed mail volumes ha ve grown slightly, stagnated, or even declined 
in the case of Luxembourg, the Netherlands, Sweden, and the United Kingdom. 
143. The EC framework for postal services, as out by the Postal Directive219, was aimed at 
improving the quality of service, maintaining the uni versal postal services for EC citizens, and 
completing the internal market for postal services.  The framework planned for progressive opening of 
the market by gradually reducing the scope of the reserved area (initially mail under 350g, amended in 
2002 to 100g and reduced on 1 January 2006 to 50g). A ke y element of the Directive is the creation of 
a strong regulatory framework with independent national regulators. 
144. On 20 February 2008, the European Parliament and Council adopted the Directive on the full  
accomplishment of the internal market of postal services.220 It set 31 December 2010 as the final date 
for full internal market opening, with the possibility  for some Member States to postpone it by a 
maximum of two years.221 The  Directive requires Member States to  continue to ensure universal 
services for all customers, including  collection and delivery of mail at least five days per week at 
affordable prices throughout the territory. It also reinforces consumer protection and increases the role 
of independent national regulatory  authorities. 
(iv) Transport 
(a) Overview 
145. In 2006, transport accounted for about 7% of  EC's GDP and employed about 8.8 million 
persons222, and was responsible for 31% of tota l final energy consumption in 2005.223 Private 
households spent €914 billion in transport services in  2006, i.e. 13.8% of their total consumption. 
During 1995-06, transport grew by 2.8% pe r year for goods and 1.7% for passengers.224 However, 
there is unequal growth in the different modes of  transport. In 2006, road transport accounted for 
45.6% of total goods transport (including intra-EC  air and sea transport), followed by maritime 
transport (37.3%), rail (10.5%), inland waterw ays (3.3%), oil pipelines (3.2%), and air (0.1%) 
(Table IV.19). On the passenger transport market , road accounted for 83.4%, air for 8.6%, rail for 
7.4%, and maritime transport for 0.6%.  
146. The 2001 White Paper, "European transport policy for 2010: time to decide", proposed an 
action plan to bring about substantial improveme nts in the subsector by developing a modern, 
                                                      
 218 The average price of a standard letter (intra-EC service) was €0.70 in 2006, ranging from €0.35 in 
Belgium to €1.80 in Portugal (Eurostat, 2008c).  
219 Directive 97/67/EC as amen ded by Directive 2002/39/EC. 
 220 Directive 2008/6/EC (Europa Press Release IP/08/323, 27 February 2008). 
 221 OJ C 265/26, 18 October 2008. 
 222 Almost two thirds (63%) worked in land transp ort (road, rail, and inland waterways), 2% in sea 
transport, 5% in air transport, and 30% support and au xiliary transport activities (e.g. cargo handling, storage 
and warehousing, travel and transport agencies, tour operators). European Commission (2008c). 
 223 Road transport consumed 82% of the EC's total transport energy in 2005 (down from 83.7% in 
1990), with air transport being the fastest growing subsector consuming 13.8% (up from 10.4% in 1990). Transport is also the largest consumer of oil products in the EC, consuming 60% of total oil product deliveries 
to final consumers, including feedstock and petrochemicals (European Commission, 2008d). 
 
224 About €440 billion was spent for the operation of personal transport equipment (e.g. to buy fuel for 
cars), €297 billion to buy vehicles, and €155 billion on  transport services (European Commission, 2008c). WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 144 
 
 
sustainable, transport system for 2010. On 22 June  2006, the mid-term review of the White Paper 
concluded that additiona l measures were required.225 Since then, some of the key developments in the 
subsector include: the adoption, in October 2007,  of about 30 measures aimed at making freight 
transport more efficient and sustainable226; and the adoption, on 25 June 2008, of the second package 
of legislation for a "single European sky" (SES II).227 In addition, a White Paper on a Common 
European Maritime Space is to  be published in 2008. 
Table IV.19 
EC freight transport by mode, 2000-06 
(Billion tonne-km and per cent) 
Mode of transport 2000 2001 2002 2003 2004 2005 2006 
Total (btkm) 3,529 3,607 3,668 3,717 3,918 4,020 4,143 
Road (btkm) 1,519 1,556 1,606 1,625 1,747 1,800 1,888 
Road (%) 43.0 43.1 43.8 43.7 44.6 44.8 45.6 
Sea (btkm) 1,348 1,400 1,417 1,445 1,488 1,530 1,545 
Sea (%) 38.2 38.8 38.6 38.9 38.0 38.1 37.3 
Rail (btkm) 401 385 382 391 413 413 435 
Rail (%) 11.4 10.7 10.4 10.5 10.5 10.3 10.5 
Inland waterways (btkm) 133 132 132 123 136 138 138 
Inland waterways (%) 3.8 3.6 3.6 3.3 3.5 3.4 3.3 
Oil pipelines (btkm) 126 132 128 130 131 136 135 
Oil pipelines (%) 3.6 3.6 3.5 3.5 3.3 3.4 3.2 
Air (btkm) 2.7 2.7 2.6 2.6 2.8 2.9 3.0 
Air (%) 0.1 0.1 0.1 0.1 0.1 0.1 0.1 
Source:  European Commission (2008), Energy and transport in figures 2007 , Brussels. 
147. The Marco Polo and Galileo programmes are two of the key measures that resulted from the 
2001 White Paper. Galileo was originally a jo int initiative by the EC (represented by the 
Commission), and the European Space Agency ( ESA); since 2008, Galileo has been managed, 
financed, and owned by the EC. It is to be fully operational from 2013, and is the first global satellite 
navigation system designed for civil use to, inter alia , alleviate mobility transport, network and 
synchronization problems by providing positioning, navigation, and timing services.228 Financial aid 
of €3,400 million have been allocated to the development (€1,255 m illion) and procurement 
(€2,145 million) of the Galileo system during 2007-13.229  
148. Trade in all modes of transport services between the EC Member States has been substantially 
liberalized since 1993, though a few restrictions rema in (there is not yet cabotage in rail freight 
transport, nor market opening in rail passenger tran sport).  Liberalization of cabotage in the other 
modes of transport in the EC occurred in stages.230  
                                                      
 225 See WTO (2007). 
 226 The proposals advocate innovation in logistics, simplify administrative procedures, and, in general, 
encourage the use of rail, maritime and inland waterway  transport in the context of co-modality (Europa Press 
Release IP/07/1550, 18 October 2007). 
 227 SES I, adopted in 2004, has not delivered the exp ected results, and the recen t sharp increase in fuel 
prices calls for more efficient use of  airspace, to reduce costs. SES II aims to further improve safety, reduce 
delays, lower fuel consumption, save up to €16 million tonnes of CO 2 emissions, and reduce annual costs by 
€2.4 billion (Europa Press Release IP/08/1002, 25 June 2008).  
228 The European Commission is responsible for the political dimension of Galileo and for setting 
objectives; the ESA is responsible for the technical definition, development, and validation of Galileo. The 
Galileo Joint Undertaking is responsible for the development of the Galileo programme and the selection of a commercial operator. Galileo will comprise 30 satellites orbiting at an altitude of nearly 24,000 km. Ground 
stations will be responsible for management and control. 
 
229 Europa Press Release MEMO 06/213, 24 May 2006. 
 230 See WTO (2004) and (2007). European Communities WT/TPR/S/214/Rev.1 
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149. The European Regional Development Fund (ERD F) and the Cohesion Fund contribute to the 
financing of transport infrastructure in the EC . Member States have planned to invest up to 
€81.9 million using these two funds.  
150. In general, trade in transport services with th ird (non-EC) countries is governed by bilateral 
agreements either with the EC or with its indivi dual Member States. Foreign companies that establish 
themselves as legal entities in the EC are subject to the same transport regulatory framework as EC 
companies. The liberalization of maritime transport between ports of the same Member State has made it possible for any EC ship-owner to provide se rvices in another Member State.  The majority of 
agreements with third countries include measures on market access to maritime transport services, and 
on the right of establishment of maritime companies.  Cargo sharing is incompatible with EC law. 
(b) Road transport 
151. Road transport contributes 1.6% to EC's  GDP.  Turnover was €344 billion in 2005, 
and 4.6 million people were employed in the sub sector (59.8% in freight and the remainder in 
passenger transport). It dominates the carriage of  goods and passengers in the EC. Road freight 
transport is expected to increase by 55% between 2000 and 2020.
231 The EC has about 61,600 km of 
motorways, with Germany, France, and Spain accounti ng for over half of the total. The most dense 
motorway networks are in the Netherlands, Luxem bourg, and Cyprus. Total road freight amounted to 
1,888 billion tonne-km (tkm) in 2006 (1,747 billio n tkm in 2004), 67.3% was national traffic and the 
remainder international; the averag e distance travelled was 109 km.  Over 70 billion tkm of dangerous 
goods were transported in the EC in 2006. 
152. Cabotage on EC territory (except Malta and Romania) rose from 14.6 billion tkm in 2004 to 
15.3 billion tkm in 2006, led by hauliers from Germany (14.8% of the total), th e Netherlands (14.2%), 
and Luxembourg (13.9%).232 Cabotage by the twelve Member States that joined the EC after 2004 
(except Malta and Romania) was only 14.6% of the to tal, and over half of this was carried by Polish 
hauliers (1.3 billion tkm).  This is because haulie rs from most of the new Member States still face 
legal restrictions.233 
(c) Rail transport 
153. Rail transport in the EC employs almost one m illion persons. The total length of railway lines 
in the EC is about 215,000 km, of which 44% ar e electrified. Germany and France have the longest 
networks with 17.7% and 14.3% of the total, wh ile railway network density is highest in the 
Czech Republic, Belgium, and Germany.234 Over 900,000 persons were employed in railways in 
2005. New high-speed rail services have resulted in  a significant increase in long-distance passenger 
transport. Rail transport is key for achieving a ba lanced intermodal transport system in the EC.235 
                                                      
 231 By 2006, road freight transport was already 24% above the 2000 level. European Commission 
(2006b). 
 232 Cabotage by road is the carriage of goods in a country by hauliers whose vehicles are registered in 
another country. Half or more of the international tran sport tonnage in Belgium, Fr ance, Italy, Sweden, and the 
United Kingdom is taken by carriers from other EC countries. 
 233 The cabotage between EC-15 and the new twelve Memb er States will be completely liberalized five 
years after their accession. However, it is already allo wed for Cyprus, Malta, and Slovenia, and in case of 
bilateral agreements between tw o States (Eurostat, 2008k). 
 234 Eurostat (2008g). 
 235 Europen Commission online information. Viewed at: http://ec.europa.eu/transport/rail/overview/cur 
rent_en.htm [13 August 2008]. WT/TPR/S/214/Rev.1 Trade Policy Review 
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154. On 23 October 2007, the European Parliament and the Council of Transport Ministers 
adopted the legislative proposals of the third railway package.236 It includes a further opening of the 
market for international passenger transport by ra il, a regulation on the rights and obligations for 
passengers in international rail traffic, a regulati on on rail freight quality, and a directive for train 
driver licences.237 The EC aims to establish an inte grated European railway area by, inter alia , 
liberalizing cross-border passenger rail services by 2010; and joining the Intergovernmental 
Organization for International Carriage by Rail (OTIF).238  Rail subsector associations, the European 
Rail Traffic Management System (ERTMS), and the Commission reached a joint commitment to test and legalize a fully interopera ble ERTMS no later than 2012.
239   
(d) Maritime transport 
155. Maritime transport (including inland waterway  transport) accounts for over 90% and 40% of 
EC external and internal trade, respectively. Th e subsector had a turnover of €88,657 million in 2005, 
employing over 222,000 persons.240 In 2006, 398 million persons passed through EC-25 ports (down 
from 413 million in 2003)241, while the transport of goods th rough EC-27 ports reached 3,834 million 
tonnes (3,393 million tonnes in 2003). With 584 million tonnes, the United Kingdom handled the most seaborne goods (15% of EC-25 maritime trans port), followed by Italy (14%), the Netherlands 
(12%), and Spain (11%). The number of vessel s at EC-27 ports exceeded 2 million in 2006.
242 
Nevertheless, maritime tr ansport capacity in the EC remains largely under-used.243 
156. In 2006, the EC had 9,900 vessels, i.e. 35.5% of the world's total controlled fleet, with a 
capacity of 332.1 million dead-weight tonnage (d wt). Greece and Germany accounted for 69.2% of 
the EC's total dwt. The EC-flagged fleet has incr eased significantly since 1997 with the adoption of 
guidelines for state aid, allowing staff working on EC -registered ships to benefit from reduced tax and 
social security contributions. Nonetheless, the fore ign-flag share was 67.7% in 2006. In 2004, the 
Commission adopted improved guidelines to spee d up the re-flagging process by encouraging 
shipowners to maintain the tonnage they register un der an EC flag, or risk losing out state aid they 
may receive for additional ships sailing under third-country flags.244 
157. On 7 June 2006, the EC adopted a Green Paper on maritime policy, w ith the main aim of 
developing an integrated maritime transpor t strategy around a "common maritime space".245 Some of 
its key objectives are: removing remaining obstacles to  internal trade; permitting the EC to set high 
                                                      
 236 The first and second railway packages were adopted in February 2001, and January 2002, 
respectively. For a description of  both packages, see WTO (2004). 
 237 European Commission online information. Viewed at: http://ec.europa.eu/transport/rail/package20 
03/index_en.htm [13 August 2008]. 
 238 The OTIF drafts regulations on, for example, the carriage of dangerous goods by rail. 
 239 The European Railway agency will draft criteria to  accredit a reference test laboratory for ERTMS.  
In this context, the Commission is to develop a European Deployment Plan for ERTMS based on existing 
national deployment plans of Member States. The deployment plan is to define steps for a fully interoperable and functional ERTMS on the medium run. 
 
240 The subsector, including shipbuilding, ports, fishing and related industries, and services, employs 
about 3 million persons (European Commission, 2006c). 
 241 Passengers are counted twice, once as they embark  and again as they disembark, overestimating the 
actual journeys made.  
242 Eurostat (2008e).  
 243 Maritime transport also plays a key part in intermodality, since it allows a way around bottlenecks 
such as in the Pyrenees between France and Spain, or  in the Alps between Italy and the rest of Europe. 
 244 In particular, the guidelines address shipowners  who operate less than 60% of their tonnage under 
EC flags, in Member States where EC registration of shipping has d ecreased in the preceding three years 
(European Commission, 2006c).  
245 COM (2006) 275 final, 7 June 2006 . European Communities WT/TPR/S/214/Rev.1 
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social, environmental, safety, and security standard s; and promoting a competitive infrastructure and 
industry.  The Commission is also considering other actions, such as: establishing a comprehensive 
European ports policy; reducing pollutant emissi ons from waterborne transport; further fostering 
short-sea shipping routes and motorways of the sea, with particular emphasis on landward 
connections; and implementing the action plan on river transport. 
158. In September 2006, a block exemption from EC competition law, afforded to liner shipping 
conferences (through which carriers have been able  to jointly decide on capacity and prices), was 
lifted, with effect as from October 2008. This d ecision aims to bring greater economic benefits 
through lower prices and more competitive exports by  stimulating competition. Prior to the removal 
of the exemption, the Commission intends to issu e guidelines to explain how the maritime subsector 
may operate in compliance w ith EC competition rules. 
159. The EC has recently concluded agreements with Korea (Rep. of), the Russian Federation, and 
Ukraine, that allow for mutual access for maritime transport services, and provide the right to 
establish maritime companies. The EC also concl uded a shipping agreement with China in 2002, and 
is currently in similar negotiations with India. Th e Commission coordinates the EC's point of view in 
the International Maritime Organization (IMO), while  the European Maritime Safety Agency (EMSA) 
provides the Commission and Member States w ith scientific and technical support relating to 
legislation for maritime safety, pollu tion prevention, and pollution-response.246 
(e) Air transport 
160. With more than 130 scheduled airlines and a ne twork of over 450 airports, air transport in 
the EC had a turnover of €111,437 million in  2005, employing ar ound 400,000 persons. 
Passengers numbers reached 792.6 million in 2007 (650.4 million in  2004), with the United Kingdom 
accounting for 19.9% of the total, followed by Germany (15%), Spain (14.9%), France (11%), and Italy (7.9%). The top ranked EC airport in terms of passenger numbers in 2007 was London/Heathrow 
with 67.9 million (about 10% of total EC air passenge r transport, 55.8% being extra-EC passengers), 
followed by Paris/Charles de Gaulle ( 59.6 million), and Frankfurt (53.9 million).
247 Air freight is very 
limited compared with volumes forwarded in the ot her modes of transport, but is of considerable 
importance for mail and express parcels, perishab le goods, and articles with a high value added.248 
The restructuring process of airlines has con tinued, including through mergers and alliances.249 
161. Air transport in the EC has been liberalized in three successive stag es: the first package, 
adopted in December 1987, started to relax the established rules250; the second package, in 1990, 
allowed greater flexibility over the setting of fares and capacity sharing251; and the third package, 
applied as from 1993, introduced the freedom to pr ovide services within the EC, including cabotage 
within individual Member States. Air carriers can set  fares and rates freely, and do not have to submit 
them to national authorities for approval. A re gulation modernizing and simplifying, in a single 
legislative text, the legal framework of the EC's av iation market entered into force in November 2008. 
                                                      
 246 EMSA's duties include looking after the EC's SafeS eaNet project for monitoring of maritime traffic 
around Europe (EMSA online information. Viewed at: http://www.emsa.europa.eu/). 
 247 Eurostat (2008b).  
 248 In 2004, air freight (including mail) in the EC-25 reached 10.7 million tonnes (up from 9.7 million 
in 2003 (WTO, 2007)). 
 249 In July 2008, British Airways and Iberia indicated that they were in talks to merge as they seek to 
cut costs to meet the challenge of soaring fuel prices and slowing demand. BBC News, 30 July 1998.  
250 For intra-EC traffic, it limited the right of governments to object to the introduction of new fares, 
and gave some flexibility to airlines on seat capacity-sharing. 
 251 It also gave EC carriers the ri ght to transport an unlimited number  of passengers or cargo between 
their home country and another EC Member State. WT/TPR/S/214/Rev.1 Trade Policy Review 
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162. The completion of the Single European Sky Ai r Traffic Management Research (SESAR) is 
aimed at reorganizing airspace according to air traffic patterns, setting common technical and 
procedural rules, and fostering the development of a harmonized European air traffic management 
(ATM) system over the next 30 years. SESAR is be ing developed over three phases: (i) the definition 
phase (2004-08), to deliver an ATM master plan defi ning the content, development, and deployment 
of the next generation of ATM systems252; (ii) the development phase (2008-13), to develop the new 
equipment and standards to ensure, through the regu latory mechanisms of the single European sky, 
the replacement of the existing ground and airborne systems, and interoperability with those outside 
Europe; and (iii) the deployment phase (2014-20), to  consist of large-scale production, procurement, 
and implementation of the new ATM infrastructure and of the corresponding aircraft equipment. The 
key performance targets are: enabling a three-fold increase in capacity; improving safety by a factor 
of ten; reducing by 10% the environmental im pact per flight; and cutting ATM costs by 50%.253 In 
June 2008,  the Commission proposed a package of measur es, "Single European Sky II", to improve 
the performance and sustainability of the aviation system. 
163. Extending the single aviation market to other countries is a key EC objective built on three 
pillars: (i) updating Member States' b ilateral agreements to ensure le gal certainty and to put all EC 
airlines on equal footing for flights to countries outside the EC; (ii) establish, by 2010, a common aviation area with neighbouring countries in the Mediterranean and the south-east
254; and (iii) setting 
up open aviation areas with other internati onal partners, such as the United States255, Canada256, 
China257, India258, as well as with Australia, New Zealand, and Chile.259 
164. The European Aviation Safety Agency (EASA) , established in 2002, assists EC policymakers 
in the development of common aviation safety rules.  To enhance air safety and passenger protection, 
and, following a series of aircra ft accidents involving EC citizens, a common air transport policy 
entered into force in January 2006.260 The EC is party to the International Civil Aviation Organization 
(ICAO), and the Montreal Convention on passenger right s (including liability of airlines for death and 
injury in case of accidents, and baggage delays).  In  February 2005, common rules entered into force 
                                                      
 252 This phase is led by Eurocontrol, the European Organization for the Safety of Air Navigation, and is 
being co-financed by the EC (€30 million from the budget for trans-European transport networks). See 
European Commission (2007k). 
 253 European Commission (2007j). 
 254 An agreement establishing the European Common Aviation Area (ECAA) was signed in June 2006. 
The non-EC ECAA partners (Albania, Bosnia and He rzegovina, Croatia, FYR of  Macedonia, Montenegro, 
Serbia, the UN Interim Administration Mission in Koso vo (UNMIK), Iceland, and Norway) will adopt EC air 
transport laws and regulations, while air transport between the EC and its ECAA partners is gradually 
liberalized. ECAA partners fully implement the EC's avia tion rules, ECAA airlines will have open access to the 
enlarged EC single market. In addition, in December 2006 the EC signed an air agreement with Morocco, while negotiations were launched with Ukraine in February 2007 (European Commission, 2007f). 
 
255 The objective is to establish an open avia tion area between the EC and the United States. A 
first-stage air transport agreement, signed in April 2007 , removes all restrictions on flying between the EC and 
the United States, and promotes cooperation in various ar eas (e.g. competition, security, and tackling the climate 
change impact of aviation). It is estimated that the ag reement will create up to €12 billion worth of benefits for 
consumers on both sides of the Atlantic.  
 256 Negotiations with Canada on a comprehensive aviation agreement started in November 2007. 
 257 In 2005, a joint declaration on cooperation was signed at the EC-China aviation summit. 
 258 In 2005, a joint action plan was agreed with India for closer cooperation in the future.  
 259 In September 2005, the Commission proposed opening comprehensive aviation negotiations with 
these three countries (European Commission, 2007f).  
260 It authorizes the Commission to ban or restrict  the activities of unsafe airlines within the EC. European Communities WT/TPR/S/214/Rev.1 
 Page 149 
 
 
on compensation and assistance to air passengers in the event of denied boarding and cancellation or 
long delays of flights.261 
165. In October 2006, the Commission revised the block exemption for passenger tariff 
conferences for the purpose of interlining262, as well as for slot allocation and airport scheduling. For 
routes within the EC, tariff conferences are no longe r exempted as of 1 January 2007. The Regulation 
exempted tariff conferences on routes between the EC and the United States or Australia until 
30 June 2007, and routes between the EC a nd other non-EC countries until 31 October 2007. 
(v) Tourism 
166. The EC remains the world's main source and d estination of international tourist flows. 
However, tourist arrivals are growing at as lower ra te than the world average, and the EC's share in 
the world market declined from 57% in 2004 to 54 % in 2007. In 2006, tourism receipts in the EC 
reached €243.2 billion (Table IV.20), with higher  growth of tourism receipts in the new Member 
States.  Tourism expenditure amounted to €244.4 billion in 2006 (€226 billion in 2004).263 In 2007, 
Spain, Italy, France, the United Kingdom, and Germany were among  the world's top ten in terms of 
arrivals, while the same five plus Austria were also  in the top ten in terms of receipts. The subsector 
contributes about 4% to the EC's real GDP, rangi ng from 2% in several Member States to 12% in 
Malta, and accounts for 30% of the total value of external trade in services.264 About 2 million tourism 
enterprises, 99% of which are SMEs, employ around 4.4% of the EC's labour force, representing more 
than 9 million jobs. As regards tourism by EC citizens,  on average, three out of four remain within the 
EC every year. The number of bed places in the EC increased from 9.9 million in 2003 to about 12 million currently, while the number of  nights spent was 2,373 million in 2007 (up from 
2,116 million in 2003).
265 
167. In March 2006, the Commission tabled a new stra tegy to boost tourism in the EC, and the 
Tourism Sustainability Group Report concerning an  "Agenda 21 for tourism" was published in 
February 2007. The new policy aims to help improve the competitiveness of EC tourism and create more and better jobs through the sustainable growth of the subsector. It is based on: (i) more policy 
coordination between Member States and tourism st akeholders; (ii) improved use of available EC 
financial instruments; (iii) better regulation; (i v) enhancing understanding of the importance of 
tourism by providing all decision-makers with high quality data; (v) improving the visibility of tourism through events organized by, inter alia , the EC presidencies and the Annual European 
                                                     
 
 261 The legislation covers scheduled and non-scheduled f lights, and applies to all airlines leaving an EC 
airport, and all airlines licensed by an  EC Member State and flying from out side the EC to the EC. Airlines are 
obliged to inform passengers of their rights under this regulation, which could include financial compensation, 
reimbursement or re-routing, meals and hotels, as well as  general assistance. Airlines are not obliged to pay 
compensation if they can prove that the cancellation is caused by extraord inary circumstances that could not 
have been avoided even if all reasonable measures had been taken (e.g. political instability, meteorological 
conditions, security risks, and unexpected flight safety shortcomings). 
 262 Interlining occurs when a passenger travels with more  than one airline or alliance on the same ticket.  
 263 Since 2003, EC tourism expenditu re has exceeded revenues, although the new Member States have 
consistently recorded surpluses. Althou gh lower in absolute terms, tourist nights spent in Bulgaria and the Baltic 
States have had the highest growth in recent years (Eurostat, 2008f). 
 264 Tourism also has an important indirect effect on employment in transport and other related services. 
If these related activities are taken into account, tourism contributes around 11% to GDP and provides about 12% of all jobs. Europa online information. Viewed at: www.europa.eu/enterprise/tourism/index_en.htm. 
 
265 In 2007, 70.9% of the nights were spent in five Member States: Spain (17.3% of the total), Italy 
(15.8%), Germany (13.6%), France (12.9%), and the United Kingdom (11.3%). The 12 new Member States together accounted for 8.1% of the total, led by th e Czech Republic with 1.7% (Eurostat, 2008j).  WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 150 
 
 
Tourism Forum; and (vi) better promotion of EC destinations.266 The Commission will present its 
evaluation of the progress made in 2011.267 
Table IV.20 
Tourism receipts, expenditure, and nights spent, 2000-06 
 2000 2001 2002 2003 2004 2005 2006 
Receipts (€ billion)        
EC-27 215.3 217.2 218.1 213.5 224.7 235.3 243.2 
EC-15 194.8 196.3 199.1 195.5 205.1 213.5 219.5 
Expenditure (€ billion)        
EC-27 211.4 216.3 218.0 218.1 226.0 239.5 244.4 
EC-15 201.2 205.1 207.1 207.6 213.9 226.0 228.9 
Nights spent by non-residents ('000)        
EC-27 891,931 891,427 877,963 871,733 879,703 910,221 955,303 
EC-15 824,531 818,624 807,578 791,666 792,706 818,259 863,224 
Source: Eurostat (2008), Panorama on Tourism 2008 edition , Luxembourg.  
168. Numerous tourism initiatives receive funding  from EC programmes; the most important 
programmes are the Cohesion Policy programm es (i.e. ERDF and ESF). For 2007-13, about 
€6.4 billion have been allocated to the subsector through the ERDF (compared with €7.7 billion over 
2000-06). In addition, many local tourism activities benefit from financial s upport through other EC 
programmes, such as those aimed at improving the competitiveness of SMEs, restoration of cultural 
heritage, and environmental prot ection. With the exception of most actions under the Structural 
Funds, the Commission decides on projects or actions to be supported on the basis of co-financing, with resources from national, regional, a nd local sources, both pu blic and private. 
(vi) Professional services 
169. Professional services play an important role in improving the EC's competitiveness, and have 
spill-over effects across the whole economy.
268 In general, there are significant differences between 
Member States in terms of regulation of profession al services and between the various professions. 
Moreover, the subsector is characterized by high levels of restrictive regulations, such as licensing 
restrictions (e.g. entry requirements and reserve d tasks), and rules governing conduct, including price-
fixing by professional associations. As a result, th e Commission, together with national competition 
authorities, is reviewing the current regulation fra mework in the subsector, which is often set by 
national governments, to remove unjustified regulatory restrictions.269 
(a) Legal services 
170. The principal services provided by the legal professions are legal advice and representing 
clients before the courts and other authorities in all aspects of the law. In most Member States, these 
extend to conveyancing of title to real estate, wills  and family matters (e.g. marriage contracts, tax 
advice). Member States have made some GATS commitments regarding legal services, with no 
restrictions on the provision of consulting services by  foreign lawyers in either home-country or under 
                                                      
 266 As many tourists see Europe as a single destination, the Commission has a web portal  to promote 
EC destinations (www.visiteurop e.com). It is managed by the European Travel Commission. 
 267 European Commission (2007b). 
 268 Precise data on the subsector are not available, but the Italian Antitrust Authority has estimated that 
in Italy an average of 6% of exporting firms' costs are due to professional services (European Commission, 
2004a). 
 269 European Commission online information. Viewed at: http://ec.europa.eu/comm/competition/sectors 
/professional_services/overview_en.html. European Communities WT/TPR/S/214/Rev.1 
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international law as regards consumption abroad . Certain market access and national treatment 
limitations are specified for the other modes of supply.270 
171. In general, Member States have high entry requirements, including up to five years of both 
university education and professi onal experience. Successful completion of a professional entrance 
examination and a compulsory membership in a pr ofessional association are also required, as well as 
certain personal qualifications, such as independence,  solvency, and absence of penal convictions. In 
many cases, entry restrictions are coupled with reserved rights to provide certain services (e.g. 
notaries have an exclusive right for conveyancing of  title to real estate), and in some cases are even 
subject to quantitative entry restrictions based on demographic or geographic criteria.271 
172. The fees charged by legal professions are not completely liberalized, although prices are no 
longer set officially in all Member States. In so me cases, there are minimum prices for lawyers (e.g. 
Austria, Germany, Italy), and notaries (e.g. Belg ium, France, Greece, Spain); maximum prices for 
lawyers (Italy, Latvia), and notaries (Austria, Belgium, France, Germany); and recommended prices for lawyers and/or notaries (Austria, Belgium, Portugal, Spain).
272 
(b) Accounting and auditing services 
173. Under the GATS, Member States maintain no restrictions on consumption abroad for 
accounting and auditing services, whereas certain market -access and national-treatment limitations are 
specified for the supply of those services through cross-border, commercial presence, and movement 
of natural persons.273 Entry regulations include: a minimum pe riod of university education (three 
years in the case of accountants and tax advisers, and four to five years for auditors); relevant experience (from three to six years); and successf ul professional examination. Membership in the 
relevant professional association is compulsory in most Member States. 
174. Fixed prices exist only for statutory audit in Greece and Portugal and for tax consultants in 
Germany. Italy is the only Member that appli es minimum and maximum prices on public accountants 
services, while recommended prices exist for both  accountancy and auditing services in Austria, 
Greece, Portugal, and the Slovak Republic.
274 
(c) Architectural and engineering services 
175. Under the GATS, Member States maintain no restrictions on consumption abroad for 
architectural and engineering services, and no lim itations on national treatme nt for both professions 
through commercial presence. Some market-access and national-treatment limitations are specified 
for the supply of architectural and engineering services through cross-border supply and movement of 
natural persons.275 In general, architects and engineers in Member States are required to meet 
considerable entry requirements. The process of becoming qualified or licensed architect/engineer 
may take up to nine years, and consists mostly of five years of university education (in some Member 
States engineering qualifications can be obtained after three years); on average, a further three years of minimum professional experience (five years for design and construction supervisors); and in the 
case of architects, successful completion of a pr ofessional examination (thi s is not generally a 
                                                     
 
 270 WTO document S/DCS/W/EEC, 22 April 2003. 
 271 Notaries do not exist in all Member States, but wher e they do exist governments, in general, regulate 
the numbers of notaries or their br anches (European Co mmission, 2004a). 
 272 A number of Member States have removed r ecommended prices (such as Finland and the 
Netherlands), and have refrained from setting prices (e.g. France).  
 273 WTO document S/DCS/W/EEC, 22 April 2003. 
 274 European Commission (2004a) and (2004b). 
 275 WTO document S/DCS/W/EEC, 22 April 2003. WT/TPR/S/214/Rev.1 Trade Policy Review 
Page 152 
 
 
prerequisite for engineers). In some Member States, licensed architects/engineers have numerous 
exclusive rights (e.g. blueprints, urban and landscap e planning), some of which are shared with 
similar professions. 
176. Prices are no longer set for architectural a nd engineering services in the EC. Nonetheless, 
minimum prices are applied in some cases (e.g. Ge rmany, Italy) for architectural and engineering 
services (e.g. Cyprus, Germany, Italy, Luxembourg), while Germany is the only Member that applies 
maximum prices on both professions. Recommended prices for architects services exist in Austria, Belgium, Czech Republic, Denmark, Germany, Hung ary, Ireland, Latvia, Slovak Republic, Slovenia, 
and Spain, while Austria, Hungary, Luxembourg, and the Slovak Republic have recommended prices 
for engineering services.
276 
                                                      
 276 European Commission (2004a) and (2004b). European Communities WT/TPR/S/214/Rev.1 
 Page 153 
 
 
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