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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. Services continue to be the most important c ontributor to real GDP and employment in the 
EC. With a view to eliminating differences in regul ation across Member States, the EC is working to 
create a genuine internal market on trade in services by 2010. Since its last Review, the EC has taken 
measures to address some structural problems, notably the completion of the Financial Services Action Plan 1999-05; the launch of a new financial services strategy 2006-10; and the Action Plan for 
transport 2002-10.  Further liberalization of ser vices would boost the overall competitiveness of the 
economy. 
2. The manufacturing sector (ISIC, revision 2, defi nition) provides around one-fifth of the EC's 
output, accounts for some three-quarters of merchandi se exports, and is still a major beneficiary of 
state aid. As a result of declining productivity gr owth in manufacturing, in 2005, the Commission set 
out a new industrial policy, which, together with  measures at Member Stat e level, is aimed at 
fostering the competitiveness of the sector. MFN ta riffs on manufactured imports average 6.8% (up 
from 6.4% in 2004), with rates ranging up to 427 .9% (AVE) on certain processed food products. 
3. The EC has an energy-intensive economy, which is about 50% self-sufficient in energy.  
Faced with increasing oil prices, the EC is seeki ng to save 20% of its energy consumption by 2020 
through, inter alia , the use of energy-efficient technologi es, and has also set a target of 21% 
renewable electricity by 2010.  Some of the EC's key policy aims in the subsector are security of 
energy supply, promotion of competition, and comple tion of the internal market by 2007. Imports of 
electricity are duty free. 
4. The EC is implementing the 2003 reform to its Common Agricultural Policy (CAP), mainly 
through the decoupling of payments from production;  this has somewhat augmented the exposure of 
farmers to world market signals. As a result, the total value of aid that potentially has the most 
production-distorting effects (market price support, output payments, and input subsidies) dropped to 
63.8% of support to producers in 2005 (down from 71.7% in 2003). The total amount spent on the 
CAP represented 45.5% of Community expenditure in  2005. Using the ISIC definition, MFN tariffs 
on agriculture, hunting, forestry and fishing average 10.9% (up from 10% in 2004), with rates ranging up to 167.2%. Border protection and domestic suppor t, together with limited liberalization under 
preferential agreements, have insulated certain  products from competition and contributed to 
surpluses.  The policy has thus made subsidies indi spensable for exports of some of the surpluses.  
The ongoing reforms aim to reorient this policy.   
(2) A
GRICULTURE AND RELATED ACTIVITIES  
(i) Main features 
5. The contribution of agriculture (including livestock, hunting and forestry) to GDP and 
employment in the EC is relatively low (Chapter I(1)). The sector employs about 9.7 million people 
on 9.9 million agriculture holdings in the EC-25; in the ten new Member States (NMS-10) that joined 
in May 2004, around 3.4 million people ar e employed on 3.6 million holdings.1 In 2004, the average 
utilized agricultural area per holding was about 15.8 ha (20.2 ha in the EC-15, and 9.3 ha in the 
NMS 10). The cultivated area increased by around 30 million ha in 2004 with the accession of the 
NMS-10 (Table IV.1). France has the largest agricult ural area, followed by Spain and Germany. Most 
                                                      
1 A holding in the EC is defined as a technical-economic unit (under single management) engaged in 
agricultural production (Eurostat, 2005a). WT/TPR/S/177/Rev.1 Trade Policy Review 
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of the agricultural area is dedicated to fiel d cropping and grazing livestock, each accounting for 
48.3 million ha, or 33% of the total agricultural area (Table IV.2); mixed farming (crops and 
livestock) accounted for 25.2% of the total agricultural area.  
Table IV.1 
Selected agricultural statistics, 2005 
 
Agricultural  
area 
('000 hectares) Final  
production 
(€ million) Share of household 
consumption 
expenditure devoted to 
food, beverages and 
tobaccob (%) External trade balance 
in food and 
agricultural products 
(€ million) 
Austria 3,254a 5,417 14.2 442 
Belgium 1,386 6,858 16.6 -1,736 
Cyprus 158a 633 17.1 -80 
Czech Republic 3,558 3,419 17.7 -182 
Denmark 2,590 7,783 25.8 2,382 
Estonia 829 524 15.3 -48 
Finland 2,264 4,262 27.0 256 
France 29,632a 63,203 19.2 4,840 
Germany 17,020a 38,583 16.2 -2,970 
Greece 3,960a 12,295 29.7 -3 
Hungary 4,267 6,129 21.0 574 
Ireland 4,307a 5,643 17.7 3,041 
Italy 13,159a 44,245 15.7 -806 
Latvia 1,702 755 22.0 -22 
Lithuania 2,792 1,611 36.1 77 
Luxembourg 129 249 .. -36 
Malta 10 125 26.5 1 
Netherlands 1,927a 20,965 .. -2,077 
Poland 14,755 15,057 13.6 348 
Portugal 3,819a 6,411 26.0 -678 
Slovak Republic 1,879 1,914 21.3 -49 
Slovenia 485 1,693 21.1 54 
Spain 25,249a 39,761 20.0 -1,692 
Sweden 3,192 4,449 18.6 286 
United Kingdom  15,894 20,707 13.1 -4,377 
EC-25 156,285 311,425 .. -2,453 
EC-15 125,852 280,406 .. -3,126 
.. Not available. 
a Figures for 2004. 
b Figures for 2003. 
Source: Information provided by the EC Commission. 
6. The EC is the world's leading trader (exporter and importer) of agricultural products; in 2004, 
it registered an external trade deficit of €2.5 billion in  food and agricultural pro ducts (Table IV.1).  In 
2004, its exports of individual commodities accounted for a substantial portion of world trade: wine 
(about 40%); pig meat, cheese, and milk powder (clo se to one third); and butter, eggs, and sugar 
(around 20%). The EC is self-sufficient in a wide range of agricultural products. In 2004, the highest 
level of self-sufficiency was in whole-milk powder,  followed by skimmed milk powder, sugar, wheat, 
and butter.2 Some EC agricultural production is  reliant on export opportunities.  
                                                      
2 EC online information. Viewed at: http://europa.eu.int/comm/agriculture/agrista/2004/table_en/en37 
[15 June 2006]. European Communities WT/TPR/S/177/Rev.1 
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Table IV.2 
Agricultural area by main type of farming, 2005 
('000 ha) 
 Specialist 
field crop Horticulture Permanent 
crop Grazing 
livestock Granivores Mixed 
cropping Mixed 
livestock Mixed crops 
and livestock 
EC-25 50,569 975 11,359 50,998 2,699 8,697 7,139 21,719 
EC-15 40,499 780 10,709 46,185 1,756 5,719 3,563 14,583 
Austriaa 672 3 77 1,937 147 74 93 252 
Belgium 277 24 24 645 42 38 83 253 
Czech Rep. 1,035 4 37 524 25 497 194 1,242 
Denmark 1,303 12 10 488 165 48 32 533 
Germanya 5,890 39 251 5,387 327 615 599 3,873 
Estonia 259 2 1 303 2 35 58 168 
Greecea 1,410 48 975 726 5 337 119 347 
Spaina 8,368 284 4,463 4,903 444 2,030 960 1,696 
Francea 9,656 94 1,454 10,679 239 751 934 3,987 
Finland 1,190 27 4 694 54 33 12 250 
Irelanda 307 6 3 3,836 15 2 14 188 
Italya 4,404 103 2,700 3,604 88 1,116 233 843 
Cyprusa 57 9 37 25 1 18 2 8 
Latvia 622 6 13 358 7 149 196 351 
Lithuania 897 15 22 392 14 380 484 587 
Luxembourg 7 0 2 97 2 3 0 2 
Hungary 2,470 27 175 303 57 418 163 643 
Malta 2 2 1 1 0 3 0 2 
Netherlandsa 471 72 34 1,157 37 57 64 116 
Poland 4,016 127 321 2,335 831 1,280 2,350 3,434 
Portugala 482 28 656 1,189 28 472 268 601 
Slovenia 38 2 25 230 2 51 72 65 
Slovak Rep. 674 1 18 342 4 147 57 636 
Sweden 1,529 10 6 1,082 47 47 38 434 
U.K.  4,533 30 50 9,761 116 98 107 1,196 
a Figures for 2003. 
Source:  Information provided by the EC Commission.  
7. Forests and other wooded land cover 160 million ha  (around 42% of the EC's  total landmass), 
and are increasing at a rate of 0.3% per year.3 Forest type and coverage vary greatly across the EC, 
reflecting bio-geographic and climatic diversity, as well as differing traditions of land use.  In recent 
decades, changes have been brought about by intensif ied management practices, the use of exotic tree 
species, the introduction of animals for hunting, and dr ainage.  Moreover, repeated forest fires have 
produced changes in the Mediterranean region.  These problems have affected the productive capacity 
of forests as a source of raw materials for timber-based industries, and their capacity to act as a carbon 
sink that lessens the effects of climate change. As a result, a new scheme, "Forest Focus", is in place 
to monitor and safeguard the Communities' forests;  it runs from 1 January 2003 to 31 December 2006, 
with a budget of €61 million for the period.4 
 
                                                      
3 Eurostat (2005d). 
4 EC Press Release IP/03/1103, 19 July 2003. WT/TPR/S/177/Rev.1 Trade Policy Review 
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(ii) Common Agricultural Policy (CAP) 
(a) Overview 
8. In June 2003, the EC Council of Ministers adopt ed a CAP reform on beef and veal, sheep and 
goat meat, cereals, oilseeds, dried fodder, seeds, and dairy products. It was aimed at, inter alia : 
establishing a more stable policy framework for the sector; putting greater emphasis on addressing the 
interests of consumers and taxpayers; increasing expos ure to market signals for producers and a shift 
towards simpler and less trade-distorting suppor t measures; keeping budgetary costs stable and 
manageable; safeguarding the rural economy and environment; and helping in negotiating an 
agreement under the WTO, while meeting the needs of the EC's agriculture and society.  In addition, 
reform proposals were agreed for tobacco, olive oil, cotton, and hops in April 20045, and for sugar in 
February 2006 (the new market organization for s ugar came into force on 1 July 2006); these reforms 
were based on the same principles as the 2003 CAP.  In 2006, the EC started to implement the cotton 
reforms, aimed at reducing trade-distorting subsidi es in the subsector, and capping public expenditure 
at € 800 million: 65% of EC cotton subsidies will be decoupled from producti on and paid out as farm 
income support (green box payment); and 35 % will be destined to producers as an aid per hectare of 
cotton (blue box payment). According to the Commission, proposals to reform the wine and fruit and 
vegetables subsectors are expected by the end of 2006 or early 2007. 
9. The key element of the 2003 CAP was the introduction of the single payment scheme, not 
based on prices or production (decoupled), which replaced most of the existing premiums under different common market organizations (CMOs).
6 Farmers are now allotted entitlements based on 
historical reference amounts received during 2000-02. However, Member States may implement the 
scheme at the regional level, in which case, all farm ers whose holdings are located in that region may 
receive payment entitlements irrespective of whether they had received direct payments in the past.7 
Member States may also choose to maintain a lim ited link between payment and production ("partial 
decoupling"). The single payment scheme is subject to  the requirement to keep all farmland in good 
agricultural and environmental condition and to r espect the statutory management requirements 
(cross-compliance). Other measures of the 2003 CA P include compulsory reduction in direct 
payments (modulation) for bigger farms to financ e the rural development policy; reforms in the 
intervention mechanism for products with structur al imbalances such as butter, rye, and rice; 
adjustments in support mechanisms for other prod ucts (e.g. durum wheat, starch potatoes, dried 
fodder, and nuts); and a mechanism for financial di scipline to ensure that the reform budget, fixed 
until 2013, is not overshot (Table AIV.1).8 
10. Although Member States had the possibility to delay implementation of the single payment 
scheme up to 2007, the majority of EC-15 countries began implementing it as from 1 January 2005, with the rest (i.e. Finland, France, Greece, th e Netherlands, and Spain) commencing in 2006. In 
Germany, Greece, Ireland, Italy, Luxembourg, and the United Kingdom less than 1% of aid is now 
                                                     
 
5 WTO (2004). 
6 The CMOs apply to: bananas, cereals, floriculture, dried fodder, fruit and vegetables, hops, olive oil 
and table olives, flax and hemp, eggs, pork, milk products, rice, seeds, sugar, tobacco, beef and veal, sheepmeat 
and goatmeat, wine, poultrymeat, and other agricultural products. See WTO (2002), for a description of the CMOs. 
7 The value of an entitlement at th e farm level is calculated by di viding the reference amount of the 
payment by the number of eligible hectares in the reference year, while the value of an entitlement at the regional level is computed on the basis of hectares within a region, rather than a single payment individually for 
each farmer. 
8 The 2003 CAP involves many detailed changes,  some taking place over several years. See WTO 
(2004). European Communities WT/TPR/S/177/Rev.1 
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coupled to production and prices, while France, Sp ain, the Netherlands and Portugal provide over 
20% as coupled aid.9 The majority of EC-15 countries based the single farm payment on farm levels; 
Denmark, Finland, Germany, Luxembourg, Swed en, and the United Kingdom used a mix of both 
farm and regional payments.10 At the date of their accession to the EC, the NMS-10 had to choose 
between implementing the direct payment schemes as they were applied in the EC-15, or applying the 
single area payment scheme (SAPS) for a maximum of five years up to the end of 2008.11 Slovenia 
and Malta opted to implement the single payment sche me as from January 2007 at the regional level, 
while the other eight NMS decided to implement the SAPS. At the end of the transitional period, these 
eight NMS should implement the single payment sch eme at the regional level. All NMS have the 
possibility to complement any direct payments by  granting complementary national direct payments 
(CNDP).12 It has been estimated that, in 2012, approximately 90% of the budgetary transfers, in the 
form of direct payments for arable crops, milk, beef, and sheep, will be part of the single payment 
scheme for the EC as a whole.13 Box IV.1 describes the situation of  agriculture and the food industry 
in the NMS-10 one year after enlargement. 
11. On 19 October 2005, the European Commission adopted a Communication calling for an 
Action Plan during 2006, which will set out concrete measures.14 One of the proposals is to 
amalgamate the various CMOs into a single CMO. The aim is to provide a single set of harmonized rules regarding market policy, such as interven tion, private storage, import tariff quotas, export 
refunds, safeguard measures, promotion of agricultu ral products, state aid rules, without changing the 
substance of the existing instruments and mechanisms.
15 
12. On the basis of its latest notification to the WTO, in the marketing year 2001/02, the EC-15's 
total Aggregate Measurement of Support (AMS) am ounted to €39,281 million (the commitment level 
was €67,159 million), while domestic support throu gh green box and blue box measures reached € 
20,661 million and €23,726 million, respectively.16 The EC has undetaken  to submit a new 
notification in due. According to the Commission, in the marketing year 2003/04, the AMS was reduced to €30,884 million, and domestic suppo rt through green box and blue box measures 
amounted to €22,074 million and €24,782 million, respectively. 
 
 
                                                     
 
9 The budget for the scheme reveals a decoupling rate of almost 90%, Agra Europe , 25 August 2006.  
10 The 2003 CAP has greater market orientation w ith the previous CAP, mainly because of the 
significant decoupling of payments from production. For the same reason, income transfer efficiency is 
improved and the administrative burden is reduced. These benefits would have been maximized if all Member States had made full use of the scope for converting commodity-linked payments into the new single payment 
scheme (OECD, 2005a) 
11 The SAPS is a single payment per ha, which is the result of dividing the annual national financial 
envelope (the sum of all direct payments) by the nationa l agricultural area determined for the purposes of the 
SAPS. In 2004, the average payment across the eight NMS concerned was €46.04 per ha. The SAPS amount is 
specific to each of the eight NMS, and increases each year according to the pha sing-in of direct payments in the 
NMS. The SAPS payment is decoupled from production, since there is no obligation to produce or to employ 
the factors of production. However, the land should be maintained in good agricultural and environment conditions. 
12 The CNDP amounts and conditions are subject to  authorization by the European Commission. 
13 The rate would be higher for milk (100%) and arable crops (93%), and lower for beef (78%) and 
sheep (73%) (European Commission, 2005e). 
14 COM(2005) 509 final. 
15 EC Press Release IP/05/1309, 19 October 2005. 
16 WTO document G/AG/N/EEC/51, 4 November 2004. WT/TPR/S/177/Rev.1 Trade Policy Review 
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Box IV.1:  The situation in the NMS-10 one year after enlargement 
The situation in the new Member States (NMS-10) one year after enlargement appears generally positive;  however there 
is a marked difference between northern a nd southern Members.  In most NMS-10 (notably Poland, the Baltic States, and 
Slovenia) opportunities seem to outweigh the challenges on the single market.  The situation in some southern NMS-10 
appears relatively mixed, and largely affected by the record ce real harvest, marketing infrast ructure problems, and the late 
operation of the Community intervention system.   
Most NMS-10 have been able to expand trade with the EC -15, with higher imports and exports and there are strong 
indications that membership has been very pos itive for trade integration among the NMS-10.  
Farm income increased by 56% in nominal  terms in 2004 compared to 2003, thanks to improved prices  as well as the 
granting of EC direct payments.  This figure however hides so me of the institutional effects of the date of payment of 
these funds, which, in a number of countries took place only at the beginning of 2005.  
Investment activities of farms (as well as of food industries) ap pear to be higher than expected, and requests for national 
and EC funds far outstrip availability in most countries.  The fi nancial sector may have started to become more flexible as 
regards lending to agriculture, since the risks are now percei ved as lower than before membership.  In some NMS-10, 
banks have established specific cred it schemes for farmers taking part in  the Rural Development Programmes.  
Land prices seem to have increased in the NMS-10, though land purchase by foreigners  remains generally restricted.  This 
is in line with expectations on the increasing profitability of agriculture after enlargement and the impact of the direct 
payments.  Farmers in countries with a high share of land leasing have been  particularly affected. 
Producer prices have generally increased for livestock, meat, and dairy products.  Pork prices have especially benefited 
from the generally favourable market situa tion in the EC linked to the pork cycle.   High quality beef prices increased 
significantly through strong demand from the ol d Member States for live animals.  In the course of year, low quality beef 
prices increased as bovine animals became in  short supply on domestic markets.  On average, beef prices are significantly 
higher than before enlargement.  Domestic  demand for beef continues to be very w eak as a response to the price levels and 
availability of quality meat.  Poultry prices have in creased in a number of NMS-10, supported by sustained export 
opportunities to the old Member States.  On the contrary, poultry prices in Hungary have  declined significantly since 
enlargement.  
Milk markets are still characterized by strong competition for hi gh quality milk in particular in Poland, Lithuania, Latvia, 
and Hungary.  The spread between low and high quality milk pr ices is very high in these c ountries.  Milk producers face 
some of the burdens of adjustment of the dairy sector, notably in Slovakia, Sl ovenia, Hungary, and Poland.  Hungary is 
one of the few countries where milk pric es have picked up again recently.  
Cereal prices tend to be lower than in 2003;  this can be attributed more to the abundant cereal harvest in 2004 than to 
enlargement.  Contributing to this was the significant shortage of interventi on stock capacity of Hungary, and some 
shortages in the Czech Republic and Slovakia, as well as the late operation of the intervention system.  Infrastructure 
difficulties resulting in high transport costs seem to have re stricted the competitiveness of cereals produced in this region 
on EC and world markets.  Producer prices declined most in Hungary as a result of early sales by farmers who had 
insufficient storage capacity to bridge the gap between the harvest and the intervention peri od.  Current market stocks 
appear to have reached a very high level, which might l ead to continuous regional price pressure during the next 
marketing campaign.  The northern NMS-10 appear to have b een less affected by these pr oblems, though cereal prices are 
also lower than in the drought year 2003. 
The situation of the food industry in the NMS-10 is mixed:  in most, investment, consolida tion, and concentration have 
been increasing thanks to foreign direct and domestic invest ments.  Challenges appear part icularly strong in the milk 
industry and in the meat processing sector, where lack of  sta ndards, and marketing difficulties se em to be the main issues.  
Favourable market opportunities in the EC, in particular for live  animals, have helped to ea se the negative impact of the 
low competitiveness of meat processors.   
Consumers in Central Europe have been a ffected quite differently by food prices since enlargement.  In most countries, 
only a limited number of products have ha d a significant price increase.  These ar e mainly sugar, beef (which is not 
important in the diet), pork, poultry, bananas, and oranges.  Prices of other products , such as imported high value added 
dairy products, have fallen.  Prices increased mostly in coun tries with limited competition am ong retailers and processors.  
The Czech Republic, Hungary, and Slovakia seem to be the counter-examples where food prices remained on average at 
the same level as in 2003 or declined slightly.  In Slovenia and Malta, food prices fell as a result of a general decline in 
agricultural raw product pric es following enlargement. 
Source:  European Commission (2005), Prospects for agricultural markets in the EU , Brussels.  
 
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13. According to the OECD, the producer support estimate (PSE) of the EC17, as a percentage of 
total production value, declined, on average, from 41% of the value of production in 1986-88 to 34% in 2003-05. It went from 36% in 2003 to 32% in 2005 due to lower domestic prices and higher border 
prices; this is still above the OECD average of 30%. Support by commodity ranges between 6% and 
69%. Since 1986-88, there has been a significant move  from market price support to payments based 
on area planted and animal numbers, which accounted for 25% of the PSE in 2003-05. Since 2004, payments based on historical entitlements have pa rtially replaced these earlier payments; they 
accounted for 16% of the PSE in 2005.  The combined share of market price support relating to output and input (the most distorting), fell from 97% of the PSE in 1986-88 to 63% in 2003-05.
18 
14. The EC's rural development regulation (second pillar of the CAP) includes accompanying 
measures (e.g. agri-environmental measures, early re tirement schemes, afforestation, and payments to 
assist farmers in least-favoured areas). These and othe r measures, such as aid for investment, training, 
promotion, and diversification of agriculture, are to  some extent co-financed by EC Member States, 
with about half of the financing coming from the EC budget. Funding for this second pillar was 
€52.5 billion for the EC-15over 2000-06. In 2005, the EC adopted its strategic guidelines for rural 
development during 2007-13, focusing on three main areas: competitiveness for farming and forestry; environment and countryside; and quality of lif e and diversification of the rural economy.
19 A single 
European Agricultural Fund for Rural Development (EAFRD) is to be set up, and the total budget 
allocated for the EC-25 is €77.7 billion over 2007-13 (Table IV.3).20  
15. The EC also finances Leader+, an initiative to  encourage and support a series of small-scale 
pilot approaches to integrated rural development, at the local level in selected areas of the EC. The EC 
total contribution over 2000-06 is more than €2 bi llion, financed under the European Agricultural 
Guarantee and Guidance Fund (EAGGF). 
16. On 6 October 2004, the Commission adopted a regulation on "de minimis" aid for agriculture 
and fisheries, which entered into force on 1 January 2005.21 The regulation exempts national aid of up 
to €3,000 per enterprise in agricultu re or fisheries (over three years) from the requirement of prior 
notification. To avoid large-scal e support operations, any Member State granting such aid has to 
respect an overall ceiling roughly equal to 0.3% of its annual agricultural or fisheries output.22  
17. In April 2004, Regulation (EC) No. 1829/2003 on genetically modified (GM) food and feed 
came into force, introducing a labelling require ment for GM feed, as well as an exemption from 
labelling GM food and feed containing adventitious  or technically unavoidable traces of GMOs up to 
0.9%. Regulation (EC) No. 1830/2003 on the traceab ility and labelling of GMOs and the traceability 
of food and feed goods produced from GMOs entere d into force in 2004. It introduced specific 
requirements on the traceability and labelling of GM food and feed.23  
                                                      
17 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. 
18 Prices received by farmers were 29% higher than those on the world market in 2003-05, compared to 
78% in 1986-88 (OECD, 2006). 
19 Council Regulation (EC) No. 1698/2005. 
20 Rural areas make up 90% of the territory of the enlarged EC (EC online information. Viewed at: 
http://europa.eu.int/comm/agriculture/capreform/rdguidelines/index_en.htm [18 July 2006]). 
21 Commission Regulation (EC) No. 1860/2004 of 6 October 2004, on the application of Articles 87 
and 88 of the EC Treaty to "de minimi s" aid in agriculture and fisheries. 
22 If all Member States use this possibility fully, average "de minimis" aid would amount to around 
€290 million per year for the whole EC, i.e. 2.2% of the annual value of agricultural state aids of €13 billion 
(WTO, 2004). 
23 Amending Directive 2001/18/EC. WT/TPR/S/177/Rev.1 Trade Policy Review 
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Table IV.3 
Support for rural development, 2007-13 
(€ million) 
 2007 2008 2009 2010 2011 2012 2013 Total 
Austria 628.2 594.7 550.5 557.6 541.7 527.9 511.1 3,911.5 
Belgium 64.0 64.0 60.2 59.7 59.3 57.0 54.5 418.6 
Cyprus 26.7 24.8 22.7 23.1 22.4 21.8 21.0 162.5 
Czech Republic 396.6 392.6 388. 0 400.9 406.6 412. 7 418.0 2,815.5 
Denmark 62.6 66.3 63.8 64.3 63.4 62.6 61.6 444.7 
Estonia 95.6 95.6 95.7 100.9 104.6 108.9 113.3 714.7 
Finland 335.1 316.1 292.4 296.4 287.8 280.5 271.6 2,079.9 
France 931.0 942.4 898.7 909.2 933.8 921.2 905.7 6,442.0 
Germany 1,185.0 1,186.9 1,147.4 1,156.0 1,159.4 1,146.7 1,131.1 8,112.5 
Greece 461.4 463.5 453. 4 452.0 631.8 626. 0 619.2 3,707.3 
Hungary 570.8 537.5 498.6 509.3 547.6 563.3 578.7 3,805.8 
Ireland 373.7 355.0 329.2 333.4 324.7 316.8 307.2 2,339.9 
Italy 1,142.1 1,135.4 1,101.4 1,116.6 1,271.7 1,266.6 1,258.2 8,292.0 
Latvia 152.9 147.8 142.5 147.8 148.8 150.2 151.2 1,041.1 
Lithuania 261.0 248.8 236.9 244.7 248.0 250.3 253.6 1,743.4 
Luxembourg 14.4 13.7 12.7 12.8 12.5 12.2 11.8 90.0 
Malta 12.4 11.5 10.7 10.5 10.3 10.5 10.7 76.6 
Netherlands 70.5 72.6 69.8 70.5 68.7 67.8 66.6 486.5 
Poland 1,989.7 1,932.9 1,872.7 1,866.8 1,860.6 1,857.2 1,850.0 13,230.0 
Portugal 562.2 562.5 551.2 559.0 565.1 565.2 564.1 3,929.3 
Slovak Republic 303.2 286.5 268.0 256.3 263.0 275.0 317.3 1,969.4 
Slovenia 149.5 139.9 129.7 128.3 123.0 117.8 112.0 900.3 
Spain 1,012.5 1,030.9 1,006.8 1,013.9 1,057.8 1,050.9 1,041.1 7,213.9 
Sweden 292.1 277.2 257.0 260.4 253.0 246.8 239.2 1,825.6 
United Kingdom 264.0 283.0 274.6 276.6 273.3 270.7 267.4 1,909.6 
EC-25 11,357.3 11,182.2 10,734.7 10,827.1 11,238.9 11,186.5 11,136.0 77,662.8 
Note:  In the Interinstitutional Agreement (including Bulgaria and Romania), €69. 75 billion (in 2004 prices) were allocated for  rural 
development for the period 2007-13. The table includes the money transferred from direct aid to farmers to rural development 
under so-called "Modulation" and other ag reed transfers (cotton and tobacco). 
Source:  Information provided by the EC Commission.  
18. An Action Plan for organic farming, proposed in  2004, includes 21 different actions covering 
market policy, public policy and organi c farming, and standards and inspection.24 In 2005, The 
Commission adopted a proposal for a new Council Regulation on organic production and labelling of 
organic products based on the Action Plan.25 
19. A total of €51.4 billion was spent on the CAP in 2005 (i.e. 45.5% of Community 
expenditure), of which 86.8% was agriculture sp ending;  the remainder was allocated for rural 
development and supporting measures.26 Expenditure is channelled mainly through the European 
Agricultural Guidance and Guarantee Fund (EAGGF)  managed by Member States and monitored by 
the Court of Auditors. Appropriations for the gua rantee and guidance section of the EAGGF for 2004 
                                                      
24 OECD (2005a). 
25 COM (2005) 671 final. 
26 European Commission (2006c). European Communities WT/TPR/S/177/Rev.1 
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were €48.1 billion. France receives the largest shar e of EAGGF assistance, in line with its biggest 
share in overall EC agricultural production27, followed by Spain, Germany, and Italy (Table IV.4). 
Table IV.4 
Guarantee and guidance expenditure by member State,  and national expenditure on agriculture, 2004 
 
EAGF guarantee 
(€ million) EAGF 
guidance  
(€ million) EAGGF 
total 
(€ million) Share in total 
EAGGF 
(%) National expenditure
on agriculture  
(€ million) 
Austria 1,141.9 19.3 1,161.2 2.4 902 
Belgium 1,072.7 10.0 1,082.7 2.3 255 
Cyprus 22.5 0.0 22.5 0.0 53 
Czech Republic 168 38.8 206.8 0.4 166 
Denmark 1,217.1 2.8 1,219.9 2.5 272 
Estonia 45.8 13.1 58.9 0.1 26 
Finland 868.8 42.8 911.6 1.9 1,652 
France 9,389.1 133.6 9,522.7 19.8 2,291 
Germany 6,033.7 512.5 6,546.2 13.6 2,007 
Greece 2,777.6 515.6 3,293.2 6.9 132 
Hungary 181.7 73.1 254.8 0.5 317 
Ireland 1,829.6 26.1 1,855.7 3.9 554 
Italy 5,022.5 571.6 5,594.1 11.6 1,100a 
Latvia 98.7 24.0 122.7 0.3 26 
Lithuania 147.9 32.0 179.9 0.4 98 
Luxembourg 37.6 0.4 38.0 0.1 35 
Malta 8.1 1.0 9.1 0.0 17 
Netherlands 1,261.9 14.2 1,276.1 2.7 813 
Poland 873.1 278.6 1,151.7 2.4 900 
Portugal 823.3 331.5 1,154.8 2.4 350 
Slovak Republic 120.9 42.3 163.2 0.3 5 
Slovenia 84.7 5.5 90.2 0.2 113 
Spain 6,319.3 874.2 7,193.5 15.0 721 
Sweden 849.1 23.4 872.5 1.8 323 
United Kingdom 3,986.6 74.0 4,060.6 8.5 978 
EC-25 44,382.7 3,660.4 48,043.1 100.0 14,106 
EC-15 42,630.8 3,151.9 45,782.7 n.a. 12,385 
n.a. Not applicable. 
a Data do not include regional expenditures. 
Source: DG Agriculture online information, Tables 2. 0.1.2, 3.4.2 and 3.4.10.  Viewed at:  
 http://europa.eu.int/comm/ agriculture [1 August 2006]. 
20. In terms of products, the largest share of EAGGF  expenditure was devoted, to arable crops in 
2006 (17.4%, down from 38.6% in 2004), followed by beef and veal (7.2%, down from 17.4% in 2004), and milk products (5.4, up from 4.5% in 2004) .  Direct aid of a horizontal nature represented 
                                                     
 
27 Over a quarter of agricultural payments go to just 5% of France's farmers, according to the Groupe 
d'Economie Mondiale  at the Paris Institut d'Etudes Politiques . It calculates that the 30 largest French farmers 
receive, on average, over €390,000 each year, that is 217 times the average recei ved by the 180,000 or so 
smallest farmers (i.e. about 40% of France's total) ( The Economist , 10 December 2005). WT/TPR/S/177/Rev.1 Trade Policy Review 
Page 88 
 
 
31.9% of total EAGGF spending (non-existent in 2004), while rural devel opment constituted 11% (up 
from 10.6% in 2004) (Table IV.5). 
Table IV.5 
Guarantee expenditure, by product, 2004-06 
2004a 2005b 2006c Products 
2005 budget heading € million % € million % € million % 
Arable crops 17,296.6 38.64 17,367.3 34.96 8,965.3 17.44 
of which refunds 72.4 0.16 288.0 0.58 333.0 0.65 
of which intervention storage 44.7 0.10 60.0 0.12 478.0 0.93 
of which intervention other than storage 209.4 0.47 78.0 0.16 78.0 0.15 
of which aid 16,974.6 37.92 16,972.3 34.17 7,933.9 15.43 
Rice 180.1 0.40 469.0 0.94 294.4 0.57 
of which refunds 22.4 0.05 18.0 0.04 12.0 0.02 
of wick intervention storage 47.6 0.11 21.0 0.04 14.0 0.03 
of which aid 110.1 0.25 430.0 0.87 268.4 0.52 
Sugar 1,283.5 2.87 1,770.1 3.56 1,682.0 3.27 
of which refunds 988.3 2.21 1,479.1 2.98 1,397.0 2.72 
of which intervention storage 296.0 0.66 .. .. .. .. 
Olive oil 2,372.4 5.30 2,296.7 4.62 2,271.0 4.42 
of which refunds 0.0 0.0 .. .. .. .. 
of which intervention storage and other 29.1 0.07 .. .. .. .. 
of which production aid 2,343.3 5.24 2,274 4.58 2,236.0 4.35 
Textile plants, of which:  851.0 1.90 912.9 1.84 997.5 1.94 
fiber flax and hemp 17.9 0.04 28.0 0.06 24.0 0.05 
cotton 835.3 1.87 883.9 1.78 973.0 1.89 
silkworms 0.3 0.00 1.0 0.00 0.5 0.00 
Fruit and vegetables 1,572.9 3.51 1,814.0 3.65 1,886.2 3.67 
of which refunds 25.8 0.06 41.0 0.08 30.0 0.06 
of which other 1,552.8 3.47 1,773.0 3.57 1,856.2 3.61 
Other plant products and measures 720.0 1.61 737.0 1.48 585.6 1.14 
Wine 1,092.0 2.44 1,227.8 2.47 1,329.0 2.58 
of which refunds 13.1 0.03 26.0 0.05 19.0 0.04 
of which other 1,078.9 2.41 1,201.8 2.42 1,310.0 2.55 
Tobacco 929.3 2.08 928.8 1.87 933.6 1.82 
Milk products 1,993.4 4.45 3,804.5 7.66 2,787.0 5.42 
of which refunds 1,494.9 3.34 1,433.5 2.89 1,214.0 2.36 
of which other 498.5 1.11 2,371.0 4.77 1,573.0 3.06 
Beef/veal 7,776.0 17.37 7,887.9 15.88 3,696.7 7.19 
of which refunds 250.8 0.56 233.0 0.47 215.0 0.42 
of which other 7,525.2 16.81 7,654.9 15.41 3,481.7 6.77 
Sheepmeat and goatmeat 1,469.5 3.28 1,794.5 3.61 951.3 1.85 
of which refunds 0.0 0.00 0.0 0.00 0.0 0.00 
of which other 1,469.5 3.28 1,794.5 3.61 951.3 1.85 
Pigmeat, eggs and poultry meat, and other 
measures in favour of animals products 173.2 0.39 197.0 0.40 171.0 0.33 
of which refunds 130.6 0.29 80.0 0.16 53.0 0.10 
of which other 30.0 0.07 117.0 0.24 118.0 0.23 
Fishery products 23.9 0.05 33.2 0.07 33.2 0.06 
Direct aids of a horizontal nature 0.0 0.00 1,388.0 2.79 16,375.0 31.85 
Total market organizations 37,733.7 84.30 42,628.7 85.81 42,958.8 83.56 
Rural development 4,748.9 10.61 4,910.0 9.88 5,675.0 11.04 
Other measures  2,277.9 5.09 2,137.4 4.30 2,778.5 5.40 
Total  44,760.5 100.00 49,676.1 100.00 51,412.3 100.00 
.. Not available. 
a Financial report 2004. 
b Appropriations for commitments entered in the budget 2005 (EC-25). 
c Appropriations for commitments entered in 2006 (doc Agri/D/12828/2005-Fr of the 27/04/05). 
Source:  DG Agriculture (2006), The 2005 Agricultural Year , Table 3.4.3.1, Brussels.  
21. Overall, the EC's total agriculture transfers,  as a share of its GDP, decreased from 2.77% in 
1986-88 to 1.14% in 2005, partly as a result of the shift from market price support measures towards payments based on area planted and herd size. Reflecting the shift away from transfers paid by European Communities WT/TPR/S/177/Rev.1 
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consumers to budgetary payments, the implicit ta x on consumers, as measured by the consumer 
support estimate (CSE), went from -37% in 1986-88 to -17% in 2005 (Table IV.6).28 
Table IV.6 
Transfers associated with agricultural policies, 1986-88 and 2003-05a 
  1986-88 2003-05 2003 2004 2005b 
PSE € million 
(%)c 90,924 
41 107,563 
34 105,467 
36 109,5774 
33 107,644 
32 
CSE € million 
(%)d -68,272 
-37 -47,712 
-19 -50,310 
-21 -50,775 
-19 -42,050 
-17 
Total transferse € million 
(% of GDP) 104,183 
2.77 120,587 
1.23 117,680 
1.24 122,989 
1.20 121,093 
1.14 
Memo item: Total transfers for all OECD countries  
 (% of GDP)  
2.32  
1.14  
1.15  
1.11  
1.10 
a EC-12 for 1986-88; EC-15 up to 2003; EC-25 from 2004. 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 Total transfers are not the sum of PSE and CSE; they cover the total value of production and include not only transfers to 
 agriculture, as measured by the PSE and CSE, but also other transfers associated w ith agricultural policies. 
Source : OECD (2006), Agricultural Policies in OECD Countries: At a Glance,  Paris.  
22. The EC has 91 tariff quotas on agricultural products (compared with 89 in 2003); they are 
managed by the Commission through a licensing sy stem based on: first-come-first-served (for 
28 tariff quotas), historic imports (for 20) , and mixed allocation methods (for 43).29 The average fill 
ratio for tariff quotas was 62% in 2002. In the mark eting year 2002/03, there was full utilization in 
imports of millet, chemically pure fructose, bonel ess high quality meat, fowls, butter, cheddar and 
cheese for processing, egg yolks, apples, grapes, fresh bananas, pears, apricots, broken rice, starch and 
sugar; while there was zero u tilization for frozen boneless buffalo  meat, swine carcasses fresh or 
frozen, sweet potatoes, preserved meat of domestic swine, preparation of malt, and barley.30 
23. Liberalization of agricultural products under th e EC's various bilateral and regional trade 
agreements remains limited (Chapter II(5)(iii)).  Processed agricultural goods imported into the EC 
from its preferential partners are subject to custom s duties comprising an industrial and an agricultural 
component. While all industrial components enjoy s ubstantial preferential treatment, tariff reductions 
on agricultural components are limited.  
24. Using ISIC (Revision 2), the simple average MFN tariff on agriculture, hunting, forestry and 
fishing is 10.9%, with rates ranging up to 167.2% (Table AIV.2). In general, tariffs are lower on 
agricultural products not produced in the EC (e.g. co ffee, tea, spices), but are considerably higher on 
some primary and processed agricultural products (Table AIII.1). Border protection and domestic 
support, together with the limited liberalization unde r the preferential agreements, have restricted the 
exposure of some products to competition (Chapter  III(2)(vi)), and have encouraged surpluses. The 
policy has thus made subsidies indispensable for exports of some of the surpluses, as well as for 
exports of certain processed agricultural products. 
                                                      
28 The CSE is an indicator of the annual monetary value of gross transfers to (from) consumers of 
agricultural commodities, measured at the farm-gate, aris ing from all policy measures that support agriculture. 
29 This includes methods involving licences issued on a first-come-first-served basis and systems where 
licences requests are reduced pro rata  where they exceed available quantities. 
30 WTO document G/AG/N/EEC/48, 27 February 2004. WT/TPR/S/177/Rev.1 Trade Policy Review 
Page 90 
 
 
25. According to the latest data provided to the WT O, the EC granted a total of € 3.1 billions in 
export subsidies during marketing year 2002/03;  the highest payments go to other milk products such as yoghurt, milk and cream and whole milk pow der (19.0%), butter and butter oil (17.4%), 
incorporated products (13.2%), suga r (9.3%), and beef meat (9.1%).
31 Actual outlays were 58% below 
the EC export subsidies commitments in the WTO,  i.e. an increase of 21.8% compared with the 
2001/02 level (of about €2.6 billion). The main incr ease occurred for milk products, while refunds for 
beef meat, wine, fruit, and vegetables declined. Ten items received actual subsidies of more than 50% 
of the specific commitments, with three receiving almost the entirety of the specific export subsidy 
commitments: poultry meat (99.8%), alcohol ( 94.1%) and "incorporated products" (99.7%). The 
subsidies cover the difference between the higher EC  prices and the lower world market prices of the 
products; therefore, they change with world prices,  exchange rate fluctua tions, and domestic price 
levels. 
26. Regarding safeguards on agricultural produc ts, during 2004-05, the EC initiated one 
investigation (frozen strawberries), one review (cit rus fruits), and imposed one definitive measure 
(citrus fruits) (Chapter III(2)(viii)(a)). Since the last TPR of the EC, Members have raised several 
questions in the WTO Committee on Agriculture , in areas such as the EC's tariff quota fill32; its 
enlargement with respect to tariff quot as, domestic support and export subsidy33; administration of the 
tariff quota for pig meat34; subsidies for restructuring and conversion of vineyards35; pest and disease 
control36; and payments for relief from natural disasters.37  
27. Since mid 2004, some issues have also been raised in the WTO SPS Committee concerning 
the EC.  In response to outbreaks of high pathogenic avian influenza (HPAI) or "bird flu" all over the 
world since 2003, the Commission established protectiv e measures for EC poultry flocks to avoid the 
introduction of the disease into the Community, follow ed by actions to minimize the impact within 
the EC, following the first case of HPAI within the EC in mid-February 2006.38 
(b) Policy by selected product 
Cereals 
28. Cereals are the EC's main agricultural product by volume (289.5 million tonnes in 2004, up 
from 259.7 million tonnes in 2000);  France is the lead ing producer (24.2% of the total), followed by 
Germany (17.5%), Poland (10.2%), Spain (8.2%), and Italy (7.5%) (Table IV.7).39 In 2005, 
production decreased to 266.5 million tonnes, mainly  as a result of the drought. Cereals production 
accounts for over 20% of the EC's agricultural re venue; some 62% of EC cereals production is now 
used in feed for EC livestock.40 Moreover, cereals provide majo r inputs for an expanding EC food-
and-drink industry.  
                                                      
31 WTO documents G/AG/N/EEC/44, 11 June 2003, and G/AG/N/EEC/52, 16 February 2005. 
32 WTO document G/AG/R/38, 28 May 2004. 
33 WTO documents G/AG/R/39, 16 July 2004, and G/AG/R/42, 25 May 2005. 
34 WTO document G/AG/R/40, 26 October 2004. 
35 WTO document G/AG/R/41, 17 February 2005. 
36 WTO document G/AG/R/42, 25 May 2005. 
37 WTO document G/AG/R/43, 2 September 2005. 
38 France's poultry subsector, the biggest in Europe, is losing US$48 million a month due to trade 
restrictions from 43 countries as a result of bird flu fears ( Financial Times , 6 March 2006). 
39 In 2003, 56% of the EC-25's total arable land area (around 50.8 million ha) was used for the 
production of cereals;  France, Poland, Spain, and Ge rmany accounted for about 60% of the total (Eurostat, 
2005d). 
40 Agritrade online information. Viewed at: http ://www.agricta.org/agritrad e/cereals/executive_brief. 
htm [2 August 2006]. European Communities WT/TPR/S/177/Rev.1 
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Table IV.7 
Production of cereals, 1999-04 
('000 tonnes) 
 1999 2000 2001 2002 2003 2004 
EC-25 251,564.8 259,661.3 256,736.8 265,019.5 231,786.8 289,479.9 
EC-15 200,832.8 213,819.5 199,732.7 211,637.1 186,765.4 225,444.1 
Austria  4,806.5 4,490.2 4,833.8 4,757.3 4,263.8 5,315.3 
Belgium 2,406.6 2,512.9 2,358.5 2,639.3 2,613.2 2,951 
Cyprus 127 48 127.4 141.8 151 80 
Czech Republic 6,928.3 6,454.2 7,337,6 6,770.8 5,762.4 8,869.1 
Denmark 8 775 9,412.7 9,423.1 8,803.7 9,050.9 8,963.2 
Estonia 401.5 696.1 558.4 524.7 505.7 599.7 
Finland 2,868.4 4,089.3 3,661 3,939.4 3,782.8 3,618.7 
France 64,135.9 65,582.5 60,143.1 69,555.7 54,807.1 70,393.2 
Germany 44,452 45,271.2 49,709.3 43,391.3 39,426 50,812.9 
Greece 4,288 4,062 4,091.3 4,074.9 4, 110 4,330.2 
Hungary 11,384.9 10,026.5 15,039.2 11,695.9 8,758.4 16,557 
Ireland 2,011.3 2,173.9 2,164.1 1,963.6 2,146.9 2,458.8 
Italy 19,641.5 19,392.5 18,660.3 19,877.3 16,461.8 21,683.2 
Latvia 783.4 923.6 928 1,028.5 932.4 1,059.5 
Lithuania 2,048.6 2,657.7 2,345.3 2,539.1 2,631.8 2,859.4 
Luxembourg 153.8 152.8 144.3 168.8 164,1 179 
Malta .. .. .. .. .. .. 
Netherlands 1,416.5 1,818.8 1,862.6 1,823.9 1,917.1 1,932.8 
Poland 25,750.3 22,340.6 26,960.3 26,877.3 23,390.8 29,635.1 
Portugal 1506 14,65.5 1,151.9 1,350,8 1,037.9 1,068.6 
Slovak Republic 2,829.4 22,013 3,212 3,193.6 2,490.3 3,793.2 
Slovenia 478.6 493.8 496 610.7 398.8 582.7 
Spain 1,7 321 23,739.8 17,179.2 20,863.8 20,308.3 23,838.5 
Sweden 4,931.3 5,670.3 5,390.7 5,461.9 5,352.1 5,511.7 
United Kingdom 22,119 23,985 18,959.4 22,965.4 213,233 22,387 
.. Not available. 
Source:  Eurostat (2005), Yearbook 2005 , Europe in figures , Chapter 7, Brussels.  
29. MFN tariffs on cereals average 55.2%, with rate s ranging up to 116.6% (Table AIII.2). The 
CMO for cereals supports EC producers mainly through the intervention price.41 Regarding support 
through direct payments, only France and Luxembour g opted for partial decoupling and retained 25% 
of their national ceilings for an additional paymen t granted to farmers produc ing arable crops.  In 
those two Member States, direct payments of up to  €63 per tonne are available to cereals farmers in 
remote areas.42 Intervention prices for cereals are €101. 31 per tonne; rye is excluded from the 
intervention system. 
                                                      
41 The intervention price is the guaranteed price below which an intervention body, designated by the 
Member State, buys and stores the quantities produced. Mo nthly increments for cereals eligible for intervention 
were reduced by 50% in the 2003 CAP reform. The intervention price can vary depending on the product 
quality. From November to June, it is increased by €0.4 6/t per month. The periods of intervention are from 
1 August to 30 April for Greece, Spain, and Portugal; from 1 Decem ber to 30 June for Sweden; and from 
1 November to 15 May for the other Member States (E C online information. Viewed at: http://europa.eu.int/ 
scadplus/leg/en/lvb/l11078.htm [14 June 2006]). 
42 Specific aid of €24/tonne, multiplied by the relevant yield coefficient, is paid to cereals farmers in 
difficult regions (i.e. Finland and Sweden north of the 62nd parallel, and some adjacent areas affected by 
comparable climatic conditions). This aid may be inte grated into the single paym ent scheme (Agritrade online 
information.  Viewed at: http://www.agricta.org/agr itrade/cereals/executive_brief.htm [14 June 2006]). WT/TPR/S/177/Rev.1 Trade Policy Review 
Page 92 
 
 
30. The EC's projections for cereals over 2005-12 are moderately positive, with production and 
exports increasing to 270.9 million tonnes and 30.5 milli on tonnes, respectively (Table IV.8). This as 
a result of, inter alia , the impact of the 2003 CAP, the return to a higher set-aside level, and a rise in 
cereals yields in the NMS-10, which currently are, on average, at  roughly half the EC-15's.  The 
assumed return to a slightly weaker euro vis-à-vis  the U.S. dollar is also expected to restore 
competitiveness for EC's cereals.43 
Table IV.8 
Total cereals market projections, 2005-12 
(Million tonnes) 
 2005 2006 2007 2008 2009 2010 2011 2012 
Usable production 261.1 260.3 261.3 262.9 263.0 265.8 267.8 270.9 
  o f  w h i c h           
    EC-15 206.2 206.1 206.9 208.1 209.1 211.2 212.3 214.2 
    NMS-10 54.9 54.2 54.4 54.7 53.9 54.6 55.6 56.7 
Consumption 244.9 244.5 246.5 248.8 249.0 251.2 252.6 256.0 
  o f  w h i c h          
    bioenergy 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 
    EC-15 198.1 197.5 199.5 201.9 202.1 204.3 205.8 209.1 
    NMS-10 46.7 47.0 47.0 46.9 46.9 46.9 46.8 46.9 
Imports 9.9 9.6 10.2 10.9 11.2 11.1 11.2 11.3 
Exports 27.8 27.9 27.6 27.5 25.0 27.1 29.0 30.5 
Beginning stocks 61.1 58.8 55.8 52.7 49.2 48.2 45.7 41.9 
Ending stocks 58.8 55.8 52.7 49.2 48.2 45.7 41.9 36.4 
  o f  w h i c h          
    intervention 12.3 13.4 13.1 10.5 11.0 9.8 7.4 3.0 
Source: European Commission (2005), Prospects for agricultural markets in the EU , Brussels. 
Beef and veal 
31. The EC's beef and veal market was severely affected by the Bovine Spongiform 
Encephalopathy (BSE) scares of 1996 and 2000/01, and by measures taken in response to these crises. 
It is estimated that during 1996-04, more than 8 million animals were withdrawn from the slaughter 
schemes, and around 6 million calves were s ubject to emergency supply-side schemes44, in an effort 
to keep supply as close as possible to falling consump tion. Moreover, the total cow herd declined by 
more than 1.6 million animals over 2001-04 due to  the joint effect of constant milk quotas and 
increasing milk yields.45 As a result, EC beef and veal pr oduction fell from 8.4 million tonnes in 1999 
to 8 million tonnes in 2004.46 The EC has become a net importer of beef and veal since 2003, and its 
exports of beef and veal have decreased since 2004.  Exports refunds in this subsector were cut on 
several occasions during 2005, and export refunds fo r live cattle for slaughter were abolished in 
December. 
                                                      
43 The strengthening of the euro against the U.S. dollar in recent years has undermined the 
competitiveness of EC's cereals exports.  
44 The culling linked to the outbreaks of foot and mouth disease (FMD) in the United Kingdom, and to 
a much lesser extent in the Netherlands, France, and Ireland in 2001, concerned around 850,000 cattle (WTO, 
2002).  
45 For the EC as a whole, some two thirds of the beef produced is derived directly or indirectly from 
dairy herds. Meat from dairy herds swells overall agri cultural output by some 10% (EC online information. 
Viewed at: www. europa.eu.int/comm/agriculture/markets/beef/index_en.htm [14 June 2006]). 
46 The NMS-10 contribute around 8% of EC-25 beef and veal production and 6% of consumption 
(European Commission, 2005e). European Communities WT/TPR/S/177/Rev.1 
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32. MFN tariffs on meat products average 25.3%, w ith rates ranging up to 427.9% (Table AIV.2). 
The CMO for beef and veal supports aid for privat e storage.  Regarding direct payments, Member 
States that opted for partial decoupling may keep  up to 100% of the suckler cow premium"(€200 per 
animal) and up to 40% of the slaughter prem ium for adult bovine animals (€80 per animal).47 
Alternatively, they may keep 100% of the slaught er premium for adult bovine animals coupled, or 
instead, up to 75% of the special male premium (€150 or 210 per animal, depending on type). Also, Member States may retain up to 100% of the cal f slaughter premium (€50 per animal) as a product-
specific payment.
48 Payments for private storage of beef a nd veal are made when the average price on 
the EC market falls below 103% of the basic price ( €2,224/tonne). Furthermore, a "safety net" storage 
intervention level applies when the average market price of juvenile cattle or steers in a Member State 
or a region of a Member State falls belo w €1,560/tonne over two consecutive weeks. 
33. The introduction of the decoupled single payment by some Member States as from 200549, 
combined with a slight relative increase in cereal feed prices, is expected  to reduce the incentives 
towards intensive beef and veal production, cau sing a reduction in production to around 7.6 million 
tonnes by 2012.  Beef and veal consumption is pr ojected to stagnate at around 8.2 million tonnes over 
the medium term, largely due to price increases and low consumer preference for beef meat.50 The EC 
is anticipated to increase its imports of beef and veal to over 0.7 million tonnes by 2012, while its 
exports are expected to fall significantly, partly  because of lower competitiveness in world markets 
(Table IV.9). 
Table IV.9 
Beef and veal meat market projections, 2004-13 
('000 tonnes) 
 2004 2005 2006 2007 2008 2009 2010 2011  2012 2013
Gross indigenous production 8,135 7,901 7,967 7,866 7,736 7,639 7,587 7,549  7,531 7,492
L i v e  i m p o r t s  9  8  888888   8  8
Live exports 103 68 43 34 32 31 29 28 26 25
Net production 8,041 7,841 7,932 7,840 7,711 7,617 7,565 7,529  7,512 7,475
  EC-15 7,446 7,272 7,346 7,296 7,171 7,083 7,036 7,002  6,986 6,952
  NMS-10 595 569 586 544 540 533 530 527 526 524
Import 504 520 515 540 598 633 650 678 702 727
Exports 328 218 157 118 99 86 74 55 53 48
S t o c k s  c h a n g e s  - 3 4  0  000000   0  0
Consumption 8,251 8,143 8,290 8,262 8,210 8,163 8,141 8,153 8,161 8,155
  EC-15 7,725 7,670 7,806 7,813 7,751 7,701 7,674 7,682 7,689 7,680
  NMS-10 526 473 484 449 459 462 467 471 472 475
Per capita consumption 18.0 17.9 17.9 17.9 17.8 17.7 17.6 17.5  17.5 17.5
Ending stocks (intervention) 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0
Source: Information provided by the EC Commission. 
                                                      
47 The suckler cow premium is support income pa id to producers who are specialized in beef 
production. The slaughter premium compensates fo r the reductions in the intervention price. 
48 The extensification payment (€40 to 100 per animal according to th e density chosen by the Member 
State), additional payments, and the deseasonalization premium are to be fully decoupled. 
49 In December 2004, slaughtering was 10% higher than (on average)  during past years because some 
Member States decided to apply the single payment scheme as from 2005 (European Commission, 2005e). 
50 Beef prices in the NMS-10 increased by 10-30%  upon enlargement. During the last ten years beef 
consumption has fallen by up to 50% in the NMS-10, in line with the strong reduction in beef production and 
price increases (European Commission, 2005e). WT/TPR/S/177/Rev.1 Trade Policy Review 
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Sugar 
34. The EC is a key player on world sugar markets,  with a 14% share of production (third largest 
producer), 12% of consumption, 12% of exports and 5% of imports. The EC is a net sugar exporter, 
with net exports representing, on average, 20% of its  sugar production and 2-3. 5% of its exports of 
agri-food products. Sugar is produced throughout th e EC, with the exception of Cyprus, Estonia, 
Luxembourg, and Malta; France, Germany, and Poland  account for half of the EC's sugar production. 
In 2004/05, production reached almost 20 million tonnes; the efficiency of sugar production varies significantly across Member States (Table IV. 10). There are 420,000 farmers growing sugar beet, 
covering more than 2 million ha, and providing abou t 2% of EC's agricultu ral output in value. 
Table IV.10 
Selected sugar indicators, 2005  
(Tonnes) 
Production under quota  
Quota A Quota B Out of 
Quota Total production 
2004-05 Yield 
2004-05 Share in 
production (%) 
EC-25a 14,371,747 2,389,790 3,066,635 19,828,172 9.09 100.0 
Austria 314,029  73,298 57,872 445,198 10.24 2.3 
Belgium 674,906  144,906 176,432 996,244 10.87 5.1 
Czech Republic 441,209 13, 653 83,675 538,537 8.02 2.7 
Denmark 325,000  95,746 50,772 471,518 9.81 2.4 
Finland 132,806  13,280 7,963 154,049 4.79 0.8 
France 2,536,487  752,260  928,421 4,217,168  11.94  21.4 
Germany 2,612,913  803,951 911,785 4,328,649 9.83  21.9 
Greece 259,500  0 0 259,500 7.91 1.3 
Hungary 400,454  1,230 51,261 452,945 7.47 2.3 
Ireland 181,145  18,115 13,918 213,178 6.88 1.1 
Italy 1,149,054  0 0 1,149,054  6.43 5.8 
Latvia 66,400 105  606 67,111 4.94 0.4 
Lithuania 103,010 0 28,131 131,141 5.43  0.8 
Netherlands 684,112  180,447 157,203 1,021,762 10.47 5.3 
Poland 1,579,969  91,923 329,523 2,001,415 6.72  10.2 
Portugal 63,380  6,338 0 69,718 8.83 0.4 
Slovakia 189,760  17,627 9,025 216,457 6.75 1.2 
Slovenia 37,994  0 0 37,994 6.23 0.3 
Spain 957,082  39,879 24,742 1,021,703 9.80 5.3 
Sweden 334,784  33,478 15,856 384,118 7.91 2.0 
United Kingdom 1,035,115 103,512 220,531 1,359,158 10.22 7.0 
a Except Cyprus, Estonia, Luxembourg, and Malta, which do not produce sugar. 
Source:  Information provided by the EC Commission.  
35. MFN tariffs on sugar and sugar products av erage 39.2%, with rates ranging up to 84.6% 
(Table AIV.2). On 24 November 2005, the EC Agricu lture Ministers agreed to reform the CMO for 
sugar over a four-year period (2006/07 to 2009/10). So me of the main reasons for changing the EC 
sugar regime are: continual decline in prices due to chronic world over-supply of sugar; sugar from 
the EC is not competitive on world markets, with s ubsidies in the order of 75% of the intervention 
price to make exports take place; growing st ocks of sugar (under unchanged internal demand 
conditions) due to constraints on subsidized exports under the WTO Agreement on Agriculture; and 
high costs of the regime to consumers.51 In October 2004, the EC also lost a WTO panel, which that 
                                                      
51 The current sugar regime, which has so far stayed outside the CAP reform process, expires in 2006. 
Sugar producers benefit from a system that combines border protection, supply control, and price support. The European Communities WT/TPR/S/177/Rev.1 
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ruled that the EC can no longer subsidize extra sugar exports to balance out preferential imports, 
mainly from ACP countries. In April 2005, the WTO Appellate Body upheld the findings of the Panel.
52  
36. Some of the key elements of the sugar reform are: (i) the reference  price will be reduced by 
20% in 2006/07, 27.5% in 2007/08, 35% in 2008/09, and 36% in 2009/10 to ensure sustainable 
market balance53; (ii) farmers will be compensated for, on average, 64.2% of the price cut (based on 
the final price cut of 36%) through a decoupled payment54; (iii) Member States that give up more than 
50% of their production quota will be  entitled to an additional coupled payment of 30% of the income 
loss for a maximum of five years, plus possible limited national aid;  (iv) merging of "A" and "B" 
quotas into a single production quota55; (v) abolition of the intervention system after a four-year 
phase-out period, and replacement of the intervention price by a reference price; (vi) introduction of a 
private storage system as a safety net in case the mark et price falls below the reference price; and (vii) 
a voluntary restructuring scheme for EC sugar factor ies, and isoglucose and inulin syrup producers, 
consisting of a payment to encourage factory clos ure and renunciation of the quota (€730/tonne in 
years one and two, €625/tonne in year three, and €520 in the final year).   
37. Developing countries will continue to have pref erential access to the EC market, and those 
ACP countries that need it will be eligible for an assistance plan worth €40 million for 2006; this will 
pave the way for further assistance. The new sugar re gime will be valid until 2014/15, and there is no 
review clause.56 
(3) F ISHERIES  
(i) Main features 38. In 2003, the EC's production of fishery prod ucts (7.3 million tonnes, 80.8% of which were 
total catches and 19.2% from aquaculture) represented 5%  of total world production. Spain, Denmark, 
France and the United Kingdom accounted for 56% of the total, with the NMS-10 contributing 9%. 
The value of output of the processing subsector is nearly twice the value of production of the catching subsector. Total employment by fisheries exceeds half a million people. Pelagic fish, such as herring, 
sandeels, sprat, horse mackerel, sardines, and mackerel, make up about 50% of total catches. 
However, cod or larger pelagic fish, are more im portant economically even though they represent less 
                                                                                                                                                                    
 
intervention price for sugar is set at €631.9 per tonne for refined sugar and €523.7 per tonne for raw sugar 
(unchanged since 1993/94). The EC market price has been two to three times higher than international reference 
prices over recent years (WTO, 2004). 
52 WTO document WT/DS265-266-283/AB/R, 28 April 2005. 
53 Reference prices should be fixed for standard qualities of white sugar and raw sugar. These standard 
qualities should be average qualities re presentative of sugar produced in the Communities, and defined on the 
basis of criteria used by the sugar trade. 
54 This decoupled payment will be linked to the respect of environmental and land management 
standards, and added to the single payment scheme (EC Press Release IP/05/1473, 24 November 2005). 
55 There are two types of sugar quota on: "A" quota (initially determined in accordance with domestic 
consumption), and a "B" quota (additio nal amount to fulfil export poten tial). They represent the maximum 
quantity of sugar eligible for price support. The total EC production quota is 17.4 million tonnes (82% for A, and 18% for B); Member States may produce more, but the over-quota production ("C") has to be sold outside 
the EC without subsidy. To maintain a certain produc tion in the current "C" sugar producing countries, an 
additional 1.1 million tonnes will be made available ag ainst a one-off payment corresponding to the amount of 
restructuring aid per tonne in 2006/07 (European Commission, 2005f),. 
56 Financing will come from a specific amount charged over three years on all sugar, isaglucose. and 
inulin syrup quotas. The rates proposed are: €126.40/tonne in 2006/07, €92.3/tonne in 2007/08, a €64.5/tonne in 2008/09 (European Commission, 2005f). WT/TPR/S/177/Rev.1 Trade Policy Review 
Page 96 
 
 
than 10% of the volume of total catches. MFN tari ffs on fishing products average 9.1%, with rates 
ranging up to 23% (Table AIV.2).   
39. In 2004, the EC's fishing fleet consisted of 92,422 vessels; 6,713 were vessels from the 
NMS-1057; which have an average age of 19 years. Be fore the accession of the NMS-10, the number 
of vessels and their capacity in terms of tonnage a nd engine power had fallen, largely due to the EC 
policy to cut fleet overcapacity to reach a better ba lance between fishing efforts and available fish 
resources.58 The EC has a 200-mile fishing zone off the coastal areas of the North Atlantic and the 
North Sea, which is fished by EC vessels, as we ll as vessels from countries that have concluded 
bilateral agreements with the EC (section (ii) below).   
40. In 2004, the EC recorded a €9.6 billion tr ade deficit in fishery products (down from 
€10.2 billion in 2003), with imports of €23. 8 billion and exports of €14.2 billion.59 N o r w a y  i s  t h e  
primary supplier (15% of the EC fishery imports), and Japan is the main consumer of EC fishery 
exports (16%). Spain has been increasingly the ma in exporter and importer of fishery products vis-à-
vis third countries; while Denmark is the main e xporter and France the main importer in terms of 
intra-EC trade. 
(ii) Common Fisheries Policy (CFP) 
41. Since 1 January 2003, the EC has operated a new CFP, aimed at addressing some of the main 
problems faced by the industry, including the overe xploitation of certain fishing stocks. The main 
changes introduced are: the adoption of a long-term  approach to fisheries management, including the 
setting of multi-annual recovery plans for stocks outside safe biological limits, and of multi-annual 
management plans for stocks; a new fleet policy;  socio-economic measures; access to waters and 
resources; control and enforcement; and involv ement of stakeholders in decision-making.60 
42. The CMO for fishery and aquaculture produc ts comprises: common marketing standards on 
quality, grades, packaging, and labelling of both EC  and imported fresh fisheries products; producers' 
organizations (POs) (composed of fishermen) esta blished in each Member State, and implementing 
the supply-side instruments of the CMO; a price support system that sets minimum prices below 
which fish products cannot be sold; and rules for trade with non-EC countries.61 For 2006, 
€18.2 million was budgeted for price support interven tions; some €14.5 million was spent in 2005. As 
from 1 January 2002, the CMO requires that consum ers be informed about the production method, the 
catch area, and the exact commercial designation of the product they buy; it also introduces some 
elements of traceability of fisheries products. These requirements also apply to imports from third 
countries.  
43. The EC's commercial policy on fishery products  has led to the opening of new autonomous 
tariff quotas for the processing industry (Table IV .11). The Community tariff quotas on all fishery 
products are managed on a first-come -first-served basis. In certain cases, the tariff reduction cannot be 
invoked when the import price is below a reference price; in these cases, the full tariff is applied.62  
                                                      
57 Eurostat (2005b). 
58 WTO (2004). 
59 Eurostat (2005b). 
60 For a description of the main elements of the CFP, see WTO (2004). 
61 The key characteristics of the five main inte rvention mechanisms of the CMO in fishery and 
aquaculture are described in WTO (2004). 
62 The reference prices, below which tariff reductions do not apply, may be fixed for products that are 
the subject of: (i) tariff reduction or suspension ar rangements; (ii) autonomous tariff suspensions for an 
indefinite period, adopted within the framework of the reform of the CMO; and (iii) other trade arrangements European Communities WT/TPR/S/177/Rev.1 
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Preferences are granted under bilateral and regiona l trade agreements (notably European Economic 
Area (EEA) and the Cotonou Agreement) and the GSP. 
Table IV.11 
Tariffs and tariff quotas on fishery products, 2006  
Product Tariffs and tariff quotas 
Alaska Pollack, frozen fillets and meat  Imports of an unlimited amount at  0% (for an indefinite period) 
Alaska Pollack, frozen   An autonomous quota opened for 3 years.  Quota for 2004-06: 10,000 
tonnes at 0% for each year 
Cod, fresh, chilled or frozen, excluding liver  and roes Imports of an unlimited amount  at 3% (for an indefinite period)  
Cod livers and fish liver of the species Boreogadus saida , 
fresh or chilled  An autonomous quota opened for 3 y ears.  Quota for 2004-06: 300 tonnes 
at 0% for each year 
Cod and fish of the species Boreogadus saida , salted or in 
brine, but not dried or smoked An autonomous quota opened for 3 years.  Quota for 2004-06: 50,000 
tonnes at 0% for each year 
Tubes of squid (Ommastrephes spp. — excluding 
Ommastrephes sagittatus —, Nototodarus spp., 
Sepioteuthis spp.) and Illex spp ., frozen, with skin and 
fins An autonomous quota opened for 3 years.  Quota for 2004-06: 30.000 
tonnes at 3.5% for each year 
Squid (Ommastrephes spp. — excluding Ommastrephes 
sagittatus —, Nototodarus spp., Sepioteuthis spp.)  and 
Illex spp. , frozen whole, tentacles and fins An autonomous quota opened for 3 year s.  Quota for 2004-06: 1.500 tonnes 
at 3% for each year 
Surimi, frozen Imports of an unlimited am ount at 3.5% (for an indefinite period) 
Surimi, frozen An autonomous quota opened for 3 years.  Quota for 2004-06: 30,000 
tonnes at 0% for each year 
Blue Grenadier, frozen fillets and me at Imports of an unlimited amount at  3.5% (for an indefinite period) 
Prawns, in shell, fresh, chilled or fr ozen Imports of an unlimited amount at 0% (for an indefinite period) 
Shrimps and prawns, cooked and peeled An autonomous quota opened for 3 years.  Quota for 2004-06: 7,000 tonnes 
at 6% for each year 
Tuna loins An autonomous quota opened for 3 years.  Quota for 2004-06: 4,000 tonnes 
at 6% for each year 
Herring, fresh, chilled or frozen An autonomous quota opened for 3 years.  Quota for 2004-06: 20,000 
tonnes at 0% between 1 November and 31 December of each year  
Hake (Merluccius spp. excluding Merluccius merluccius, 
Urophycis spp.) , frozen An autonomous quota opened for 3 years.  Quota for 2004-06: 20,000 
tonnes at 0% for each year 
Blue grenadier (Macruronus spp.) , frozen fillets and other 
meat An autonomous quota opened for 3 years.  Quota for 2004-06: 15,000 
tonnes at 0% for each year 
Rock lobster (Palinurus spp., Panulirus spp., Jasus spp.) , 
frozen   An autonomous quota opened for 3 year s.  Quota for 2004-06: 1,500 tonnes 
at 6% for each year 
Southern blue whiting (Micromesistius australis),  frozen 
fillets and other meat An autonomous quota opened for 3 year s.  Quota for 2004-06: 2,000 tonnes 
at 0% for each year 
Anchovies (Engraulis anchoita) , salted or in brine, but not 
dried or smoked An autonomous quota opened for 3 year s.  Quota for 2004-06: 2,000 tonnes 
at 0% for each year 
Herring, spiced/vinegar cured,  in brine, preserved in 
barrels of at least 70 kg. net drained weight An autonomous quota opened for 3 year s.  Quota for 2004-06: 6,000 tonnes 
at 6% for each year 
Source:  Information provided by the EC Commission.   
44. An important aspect of the EC's fisheries policy,  in the light of fragile fish stocks within its 
territorial waters and fleet over-capacity, remains the development of fishing opportunities elsewhere, 
either through bilateral agreements63, or on the high seas, through regional fisheries organizations 
(RFOs).64 The EC's "Southern" agreements are mainly with African and Indian Ocean countries, and 
provide for access by EC fishing vessels in excha nge for EC financial assistance and fees from vessel 
                                                                                                                                                                     
that provide for compliance with a reference price and are in line with EC international undertakings 
(Commission Regulation 2574/2001). 
63 The EC has bilateral fisheries agreements with fo ur Northern European co untries, and 18 African and 
Indian Ocean countries (DG Fisheries online informati on. Viewed at: http://europa.eu.int/comm/fisheries/doc_et 
_publ/factsheets/fact s/en/pcp4_2.htm [14 July 2006]). 
64 The EC is a contracting party to the 11 RFOs  (DG Fisheries online in formation. Viewed at: 
http://europa.eu.int/comm/fisheries/doc_et_publ/fact sheets/facts/en/pcp4_3.htm [3 July 2006]). WT/TPR/S/177/Rev.1 Trade Policy Review 
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operators. The tuna agreements pr ovide for no direct competition between EC and local fishing fleets. 
The "Northern" agreements exchange fishing oppor tunities between EC fleets and the fleets of third 
countries and/or territories;  financial compensati on is provided by the EC to Greenland. The EC 
budget for fisheries agreements was €62 million for 2006, down from  €183 million in 2003. 
45. The placement of fishery products on the EC ma rket, whether of domestic or foreign origin, is 
subject to sanitary regulations to protect the hea lth of consumers.  A Commission Decision sets the 
conditions for imports into the EC from each third country based on a report of a mission of experts.65 
A Commission Decision sets out a list of 113 countri es from which imports of fishery products are 
permitted; imports are not permitted from countries not on the list.66  Part I of the list identifies 
85 origins ("fully harmonized" countries) with practices and legislation considered to be in line with 
the EC's; imports from these origins are authorized, subject only to spot checks and verification. Part 
II of the list identifies the other 28 "pre-harmonized" countries, from which guarantees have been received concerning their inspection systems and their legal sanitary requirements, but which have not 
been verified by an on-the-spot inspection.
67 Imports are authorized provisionally, on the basis of 
documentary evidence, and EC inspection is carried out. Part II was extended to 31 December 2005, 
due to delays and the possibility of revised legisl ation as a result of the White Paper on Food Safety.   
46. Since 1 January 2006, the EC has been appl ying a new "hygiene package" on food safety, 
including for fishery products, which replaced the legislation from the early 1990s. The new package 
consists of five EC Regulations (t he same text applies in all Member States), four of which concern 
fishery products: No. 852/2004 sets out general hygiene principles; No. 853/2004 sets out specific 
hygiene rules for food of animal origin (speci fic requirements for fishery products in Annex III 
Section VIII and for live bivalves in Section VII);  and Nos. 854/2004 and 882/2004 specify rules for 
official controls. This hygiene legislation, taken t ogether with the General Food Law, aims to ensure 
an effective food safety system.68 
47. The Financial Instrument for Fisheries Guidan ce (FIFG) remains the leading form of financial 
assistance to the subsector (€3.7 billion in 2000-06).69 As from 2007, the European Fisheries Fund 
(EFF) will succeed FIFG, and will operate on a similar basis.70 The EFF is aimed at , inter alia : better 
supporting the major objectives of the CFP, in partic ular the sustainable exploitation of fisheries 
resources, including aquaculture; strengthening the competitiveness and viability of operators in the 
subsector; and promoting environmentally friendl y fishing and production methods. The EFF budget 
for 2007-13 is €3.8 billion.  In addition, €2.3 billion  will be allocated to finance the so-called second 
                                                      
65 The test applied to imports is whether the hygiene conditions under which production is carried out 
in the country of origin can be considered to be equivalent to that required from EC producers;  there must also 
be a competent authority responsible for the public health aspects of fishery products (WTO, 2004). 
66 Commission Decision 97/296/EC. 
67 Council Decision 95/408/EC, as amended. 
68 EC Regulation No. 1642/2003. 
69 The  main purposes of the FIFG: to assist in fishing-reduction efforts decided by the Council, which 
sets out (for each Member St ate) the objectives for fleet  restructuring and the means to achieve them; to finance 
investment, including in fleet renewal and modernization of fishing vessels; and to counter the social, economic, 
and regional consequences of the restructuring of the EC fishing industry through the new CFP.   
70 Most existing measures under the FIFG will be re vised, and new measures (e.g. encouragement of 
selective fishing methods and the funding for local development strategies to foster the sustainable development 
of fisheries areas) will also be introduced. It will be up  to Member States to decide how they allocate funds 
between the different priorities set (EC online information.  Viewed at: http://ec.europa.eu/fisheries/cfp/structural 
_measures/arrangements_2007_2013_en.htm [1 August 2006]). European Communities WT/TPR/S/177/Rev.1 
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instrument of the CFP, i.e. all budgetary means for fisheries not covered by the EFP, such as the 
conservation, control and surveillance,  governance, and international aspects.71 
48. The  European Regional Development Fund (E RDF) supports several fishing activities, and 
fisheries-dependent regions. During 2000-06, these regions received €83.1 million (0.4% of the total 
ERDF funding, of €19.2 billion). Moreover, the European Social Fund (ESF) supports various 
transnational projects, mainly in Spain, France,  Italy, and Portugal, dealing with training and 
diversification in fisheries and aquaculture. Duri ng 2000-06, ESF allocations to fisheries-dependent 
regions totalled €5.2 billion. Planned expenditure  for agriculture and fisheries activities under 
EAGGF during 2000-06 was €11.4 billion.72 
(4) E NERGY  
49. The EC is an energy-intensive economy;  it accounted for about 15% of world energy 
consumption in 2000. As the world's largest ener gy importer, and the second largest consumer, the 
EC's demand for primary energy grew by 10% between 1990 and 2000. In 2002, the United Kingdom 
was the leading producer of primary energy (28.5%  of the EC's total production), while Germany was 
the largest consumer (19.4% of final energy c onsumption) (Table IV.12). Industrial demand for 
energy has been relatively stable, but demand from households and the tertiary sector has increased as 
a result of the transition to a more service-oriented economy.  
50. The EC's own energy supply covers barely half  of its needs; fossil fuels (oil, coal, and natural 
gas) make up four fifths of total energy c onsumption and almost two thirds of imports.73 Nuclear 
power accounts for about 15% of current consum ption. Renewable energy sources contribute only 
6%, though the aim is to increase this share to 12% by 201074;  the EC has also set a target of 21% 
renewable electricity by 2010. In real terms, between 1996 and 2004, gas prices for household 
consumers rose by 20% while electricity prices fell by 6%.75 The differences in energy prices are very 
small between old and new Member States.  Imports of electricity are duty free (Table AIV.2). 
51. On the basis of the Green Paper adopted by  the Commission in March 2006, the three main 
policy aims of the EC in energy are: completion of  a fully competitive internal market;  assuring the 
security of energy supply; and achieving environmentally sustainable, clean, and efficient energy 
supply and use.76 Overall policy measures comprise full market opening to all consumers and 
producers by 2007; further interconnection of European energy grids; extension of the energy market 
to neighbouring countries and regions ; further diversification of energy forms, sources, and supply 
routes; increases in clean indigenous energy produc tion including renewable energies and other low 
carbon energy sources;  greater energy efficiency; increased and more effective energy technology 
development; and greater coordination of external  energy policy and the promotion of such policy 
                                                      
71 EC online information. Viewed at: http://ec. europa.eu/fisheries/cf p/structural_measures/ 
arrangements_2007_2013_en.htm [1 August 2006]. 
72 WTO (2004). 
73 Oil accounted for some 38% of the EC's total energy supplies in 2001, followed by natural gas 
(23%). Natural gas from the Russian Federation alone represents nearly 20% of EC's total energy consumption. The EC has 8 years of oil reserves, 20 years of natural gas reserves, and 40 years of uranium reserves (Eurostat, 
2005d). 
74 DG for Energy and Transport (2005). 
75 In more recent years, electricity prices have been  rising due to the increase in gas prices, as gas has 
become one of the major fuel sources for electri city generation, and the introduction of the CO 2 emission trading 
scheme in 2005 (European Commission, 2005d). 
76 COM(2006) 105 final, 8 March 2006. WT/TPR/S/177/Rev.1 Trade Policy Review 
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approaches on a global basis. The Green Paper wi ll be followed by reviews, which will propose 
further specific actions to achieve these aims. 
Table IV.12 
Production and consumption of energy, 1998-02 
('000 tonnes of oil equivalent (toe)) 
 Total production of primary energy Final energy consumption 
 1998 1999 2000 2001 2002  1998 1999 2000 2001 2002 
EC-25 895,988 903,344 891,819 892,951 892,201a  1,069,245a 1,071,036a 1,070,960a 1,096,899a 1,084,653a 
EC-15 751,496 765,565 756,118 753,877 751,569a  942,025a 947,204a 950,129a 972,631a  961,754a 
Austria 8,631 9,257 9,382 10,167 10,293  22,216 21,821 22,117 24,513  25,204 
Belgium 12,033 13,274 13,065 12,637 12,900  37,092 36,931 36,931 37,219  35,825 
Cyprus 43 44 45 44 45  1,531 1,575 1,634 1,689  1,700 
Czech 
Republic 30,437 27,642 29,497 30,146 30,346  24,444 23,139 24,060 24,156  23,838 
Denmark 20,308 23,690 27,587 26,978 28,452  14,997 14,933 14,608 14,947  14,708 
Estonia 3,243 2,976 3,168 3,420 3,620  2,609 2,355 2,362 2,517  2,586 
Finland 13,125 15,153 14,809 15,065 15,666  24,172 24,637 24,555 24,739  25,489 
France 124,162 126,347 130,579 131,305 132,662  150,825 150,719 15,1624 158,652  154,101 
Germany 131,597 134,535 132,095 131,363 131,613a  224,450a 219,934a 213,270a 215,174a  210,485a 
Greece 10,038 9,463 9,946 9,942 10,541  18,159 18, 157 18,508 19,112 19,497 
Hungary 11,467 11,378 11,127 10,763 11,047  15,598 15,851 15,799 16,400 16,915 
Ireland 2,479 2,611 2,111 1,730 1,499  9,308 9,835 10,520 10,932 11,227 
Italy 30,100 28,939 26,780 25,580 26,206  118,451 123,073 123,005 125,625 125,163 
Latvia 383 1,497 1,259 1,718 1,831  3,525 3,471 3,268 3,643 3,628 
Lithuania 4,406 3,459 3,161 4,118 4,847  4,343 3,956 3,639 3,778 3,903 
Luxembourg 50 46 57 50 56  3,183 3,341 3,544 3,689 3,732 
Malta .. .. .. .. ..  529 551 522 445 445a 
Netherlands 62,684 59,209 56,912 60,634 60,131  49,307 48,470 49,745 50,775 50,641 
Poland 86,775 82,829 78,441 79,362 79,053  60,378 58,843 55,572 56,198 54,396 
Portugal 3,036 2,656 3,109 3,895 3,643  15,421 15,982 16,937 18,069 18,342 
Slovakia 4,701 5,093 5,966 6,357 6,478  9,991 9,739 9,499 10,883 10,868 
Slovenia 3,036 2,861 3,037 3,146 3,364  4,272 4,352 4,477 4,558 4,620 
Spain 31,289 30,305 31,245 32,860 31,771  71,750 74,378 79,411a 83,221a 85,379a 
Sweden 33,178 33,257 30,144 33,685 31,849  34,251 34,076 34,532 33,132 33,668 
U.K. 268,787 276,823 268,299 257,986 254,287  148,443 150,917 150,821 152,833 148,294 
.. Not available. 
a Preliminary.  
Source:  Eurostat (2005), Yearbook 2005 , Europe in figures, Chapter 6, Brussels. 
52. Since the last TPR of the EC, other impor tant energy policy developments include the 
adoption of a Green Paper on energy efficiency, a Directive on energy end-use efficiency and 
services, and the signing of the Energy Community Treaty.  Faced with increasing oil prices and the prospects of having to import 70% of its energy n eeds by 2030, on 22 June 2005, the EC adopted the 
Green Paper on Energy Efficiency, seeking to save 20% of its energy consumption by 2020 through 
changes in consumer behaviour and energy efficien t technologies (the EC estimates that it could save European Communities WT/TPR/S/177/Rev.1 
 Page 101 
 
 
€100 billion on its energy bill).77  In October 2006, the Commission adopted an ambitious Action Plan 
for Energy Efficiency, comprising 75 measures in te n priority areas, which together with previous 
measures (including the Energy End-use Efficiency  and Energy Services Directive), should achieve 
energy savings of about 1.5% per year. On 25 October 2005, the Energy Community Treaty was 
signed between the EC and nine south-east Europ ean countries, constituting the largest internal 
market for electricity and gas in the world.78 
53. About €25 million per year was budgeted to s upport the development of the trans-European 
energy network (TEN-E) during 2000-06, and €155 million has been allocated for 2007-13.79 In 
addition, around €30 million per year has been budgeted to finance several other energy-related 
programmes: Carnot (clean and efficient use of solid fuels); Sure (safe transport of radioactive 
materials); Altener (promotion of renewable energy sources); Save (promotion of energy efficiency); 
Synergy (promotion of internationa l cooperation in energy); and Etap (studies, analyses and forecasts 
on energy). Moreover, some €20 million has been a llocated annually to support activities related to 
nuclear energy.80 
54. The 2005 Commission Report on the functioning of the electricity and gas market concluded 
that81: (i) market integration is still insufficient, with  important price differences within the internal 
market (differences of more than 100% for some i ndustrial customers), and low level of cross-border 
trade in electricity and gas82; (ii) 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; (iii) several Member States missed th e deadline of 1 July 2004 to implement recent 
Directives83; and (iv) dominant positions and insufficien t unbundling, especially in gas transmission 
and in gas and electricity distribution, seem to discourage consumers from switching supplier.  Lack 
of transparency undermines the position of new entr ants and aggravates mistrust by industry and 
consumers in the pricing of energy.84 
55. Following the designation of a regulatory aut hority in Germany in July 2005, all Member 
States now have electricity and gas regulators. In December 2003, the Commission set up the 
European Regulators Group for Electricity and Gas (ERGEG); however, on 14 March 2006, EC 
                                                      
77 Half of the savings could be achieved through full implementation of legislation already adopted (or 
about to be adopted) on buildings, domestic appliances or energy services. To save the other 10%, the EC needs 
to be "imaginative and proactive" (EC Press Release IP/05/774, 22 June 2005). 
78 The nine countries are: Croatia, Bosnia and Her zegovina, Serbia, Monteneg ro, Albania, the FYR of 
Macedonia, Romania, Bulgaria, and Ko sovo. Negotiations with Turkey ar e ongoing. Moldova,  Ukraine, and 
Norway (currently observers) have applied to join (MEMO/05/397, 25 October 2005). 
79 MEMO/06/213, 24 May 2006. 
80 European Communities (2005). 
81 In July 2005, the Commission launched an inquiry aimed at identifying distortions to competition in 
the electricity and gas subsectors. Initial findings were published in November 2005, and final results are expected in the second half of 2006 (MEMO/05/427, 14 November 2005). 
82 In 2004, cross-border flows of electricity increased by only two percentage points compared with 
2000.  In 2002, the European Counc il 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. Therefore, 
electricity and gas markets, exce pt in Nordic countries, remain national in scope (MEMO/05/427, 
14 November 2005). 
83 A large number of Member States were as much as  a year late in implementing the Directives, while 
others have still not done so and are now or will shor tly be before the European Court of Justice (Spain 
(electricity and gas), Luxembourg (elect ricity and gas), Greece (electricity), Es tonia (gas), Portugal (electricity), 
Ireland (gas)). Some Member States have taken a "min imalist" approach in im plementing the Directives 
(COM (2005) 568 final). 
84 European Commission (2005d). WT/TPR/S/177/Rev.1 Trade Policy Review 
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energy ministers rejected a Commission proposal for a single EC-wide regulator.85 The possibilities 
for sector-specific regulatory authorities to take decisions and enforce them differ between Member 
States. Effective regulation is also undermined by the fact that some Member States have set up 
several regulators, at national and regional levels , and in some cases power is split between the sector-
specific regulator, the competition authority, and the ministry.86 Furthermore, steps taken by EC 
regulators to open up national energy markets to co mpetition have been seriously undermined by a 
flurry of cross-border takeovers and bids, which, in  some cases, may result in some of the largest 
energy groups in the world.87 
(5) M ANUFACTURING  
(i) Overview 56. Productivity growth in EC manufactur ing has been decreasing over time.
88  Nevertheless, it 
still provides around one-fifth of the EC's output, and employs some 34 million people. Manufacturing also accounts for some three quarter s of the EC's merchandise exports; over 80% of 
private sector R&D expenditure is spent in manufactur ing; and the sector is closely inter-linked with 
services industries to which it supplies key inpu ts. Some 23 million small and medium-sized 
enterprises (SMEs) participate in the EC economy, notably in the manufacturing sector, i.e. 99% of 
total SMEs, and 58% of manufacturing employment.
89 
57. The Lisbon European Council of 23 and 24 March 2000 set a new strategic policy objective 
for the EC: "to become the most competitive a nd dynamic knowledge-based economy in the world by 
2010, capable of sustained economic growth with mo re and better jobs and greater social cohesion". 
Achieving this depends, to a great extent, on the ability of the EC to de velop the competitiveness of 
its manufacturing industry. To this end, on 5 Oct ober 2005, the Commission set out a new industrial 
policy to create better framework conditions for ma nufacturing industries in the coming years, and on 
10 November 2005, it tabled a new comprehensiv e policy for SMEs to help make them more 
competitive by streamlining EC policy instruments. 
58. The new EC industrial policy will complement work at Member State level, and includes the 
following seven major horizontal policy initiatives:  improving the IPRs framework and reducing 
counterfeiting; establishing a high-level group on competitiveness, energy, and the environment; 
                                                      
85 The Commission had called for a Europe-wide energy regulator seeking to counter national 
monopolies and reduce bills ( International Herald Tribune , 15 March 2006). 
86 European Commission (2005). 
87 On 27 February 2006, France announced its support for the €73 billion merger between state-
controlled Gaz de France and Suez (the French power and water group). The merger, expected by the end of 
2006, would create the world's second-largest utility by mark et value, behind Electricité de France. In a different 
case, the Commission has threatened lega l action against Spain for seeking to keep its electricity and natural gas 
industry in national hands by blocking the €35 billion takeover of Endesa by Germany's E.ON ( International 
Herald Tribune , 27 February 2006). 
88 Developments in EC manufacturing showed considerable diversity during 1979-02:  employment 
and output declined in textiles and clothing, and leat her and footwear; whereas some other industries (e.g. 
chemicals, rubber and plastics, telecommunications equipment, office machinery and electrical equipment) 
showed marked increases (WTO, 2004). 
89 A new definition of SMEs has been in use since 1 January 2005. According to the new definition, 
micro companies have less than ten employees, and a turnover/or balance sheet of up to €2 million (previously undefined); small enterprises have less than 50 work ers, and a turnover/balance sheet of up to €10 million 
(previously €7 million and €5 million, respectively); and medium-sized companies employ less than 
250 workers, have a turnover of up to €50 million (€40 million), or balance sheet of up to €43 million (€27 million) (EC Press Release IP/05/1404, 10 November 2005). European Communities WT/TPR/S/177/Rev.1 
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developing and implementing a strategy to tackle  market access barriers in selected sectors and 
countries; simplifying existing legislation (e.g. auto motive, construction); improving industrial skills 
(e.g. in engineering, textiles and leather); managing structural changes (in textiles, leather, furniture, 
footwear, ceramics, printing, motor vehicles, shi pbuilding, steel, and certain food industries); and 
establishing an integrated European approach  to industrial research and innovation.90 In addition, the 
new industrial policy includes sev en sector-specific initiatives91, and the screening of opportunities 
and challenges for 27 individual industries grouped in to four broad categories (food and life sciences, 
machine and systems, fashion and design, and basic and intermediate).92 
59. The new policy for SMEs proposes specific acti on in five areas: promoting entrepreneurship 
and skills; improving SME's access to markets, includi ng to public pr ocurement and standardization; 
cutting red tape, for example related to State ai ds, and SME's participation in EC programmes; 
promoting SME's growth potential, such as fost ering their innovation and research capacity, and 
increasing financial support to SMEs; and strengthening dialogue  and consultation with SMEs 
stakeholders. 93 
60. The manufacturing sector is a major beneficiar y of state aid.  Various support programmes 
and instruments are available to SMEs, and ar e different in nature, rules, and time frames 
(Table IV.13). Financial instruments are intended to increase the volume of credit or equity offered to 
SMEs and to encourage banks to develop thei r SME lending capacity. Other programmes consist 
mostly of subsidies to businesses or to busin ess support organizations. They include €21 billion 
budgeted in structural funds during 2000-06. 
Table IV.13 
Main SME support programmes and instruments, 2000-06 
(€ million) 
Community action Estimated amount allocated to SMEs  
Financial instruments   
SME element of EIB Global loans (2003) 4,771 
Financial support of the Multiannual Programme for Enterprises and En trepreneurship, in 
particular SMEs (managed by the European Investment Fund) (2001-05) 355 
Structural funds  
Objectives, Community initiatives, a nd innovation acti ons (2000-06) 21,000 
Research and development  
6th RTD Framework Programme (2002-06) 
  of which collective and cooperative measures  2,200 
473 
Vocational training  
Leonardo da Vinci (2003) 9.9 
Environment  
LIFE environment (2003-04) 30 
International cooperation and export promotion  
AL-Invest (2002-06) 46 
Asia-Invest (2002-07) 35 
Gateway to Japan 3.5/year  
Source:  European Commission (2005), The activities of the EU for SMEs:  SME Envoy Report , Brussels.   
                                                      
90 MEMO/05/352, 5 October 2005.  
91 These refer to: pharmaceuticals (developing a sing le market); biotechnology  strategy; high-level 
group on chemicals and defence industries; European space programme; taskforce on information and 
communication technologies (ICT); mechanical engineering policy dialogue; and a series of competitiveness studies (MEMO/05/352, 5 October 2005). 
92 The basic and intermediate indust ries (e.g. chemicals, steel, and pulp and paper) are largely energy-
intensive, and account for some 40% of EC manufacturing value-added. As  suppliers of key inputs, these 
industries can be an important source of innovation for other activities. Growth rates in these industries have 
ranged from low to medium over the last few years, w ith the exception of chemical s and rubber, where growth 
has been strong.  
93  COM(2005) 551 final, 10 November 2005. WT/TPR/S/177/Rev.1 Trade Policy Review 
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61. On the basis of ISIC (Revision 2), MFN customs tariffs on manufactured goods average 
6.8%, with rates ranging up to 427.9% on certain food products (Chart IV.1 and Table AIV.2). 
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 variable tariffs on, inter 
alia, edible vegetables, edible fruit, and preparations of cereals. 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 these 
inputs, exports of these manufactured goods require subsidies. In industries requiring inputs that are 
not produced by the EC (certain agricultural and mineral products in particular), the tariff shows 
positive escalation, i.e. high effective ra te of protection (Chapter III(2)(ii)). 
(ii) Selected industries 
(a) Aerospace 
62. The aerospace subsector in the EC grew by about 50% during 1995-04, well above the overall 
manufacturing sector rate of 19%. The aerospace market is cyclical, depending largely on the 
acquisition plans of airlines, which fluctuate consid erably especially in times of economic uncertainty 
and global security concerns. In 2002, the subsector  employed 363,900 pers ons, generated €29 billion 
in value added, and had a turnover of €92 billion (Table IV.14). The manufacture of large civil 
aircraft contributed 43.4% to the subsector's tota l turnover in 2002, followed by military aircraft 
(25.9%), helicopters (9.9%), spacecraft (7.7%) and missiles (7.3%).94  
63. The aerospace industry is one of the EC 's cutting-edge high-technology and research-
intensive industries.95 It is also highly concentrated, as the United Kingdom, France and Germany 
accounted for over 80% of the value added in the s ubsector in 2002, compared with an average of 
55% in manufacturing. Transport equipment accounted  for 22% of total EC exports (€30.5 billion) in 
2003, and 35% of its imports (€29 b illion). Tariff protection on aircraft manufacture is relatively low, 
with tariffs averaging 1.5% and ranging up to 3.9% (Table AIV.2). 
64. The EC is currently involved in two dis pute settlement cases with the United States on trade 
in large civil aircraft under the WTO Agreem ents, one as complainant and one as defendant.96 The 
EC's trade relations in the subsector are governed , at the bilateral level, by the 1992 EC/U.S. 
Agreement on Trade in Large Civil Aircraft.97 The main objective of this bilateral agreement is to 
regulate the level of both direct and indirect  government support to the aircraft industry. 
                                                      
94 Eurostat (2006c). 
95 Between 1996 and 2002, the growth in patent applications in "aircraft, aviation, cosmonautics" grew 
by 117%, compared with 46% in manufacturing on average. Germany, the United Kingdom and France accounted for aroun d 80% of total EC patent app lications (Eurostat, 2006c). 
96 WTO documents WT/DS316 and WT/DS317, 20 July 2005. 
97 Large civil aircraft industry is dominated by Ai rbus and Boeing. Airbus's world market share has 
increased steadily since the early 1970s; it currently exceeds 50% of all new orders (Eurostat, 2006c). European Communities WT/TPR/S/177/Rev.1 
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0102030405060708090100110
111
122
210
230
311
313
321
323
331
341
351
353
355
361
369
372
382
384
390Chart IV.1
EC tariff by ISIC classsification, 2006
Percent
WTO Secretariat calculations, based on EC Official Journal  L286, 28 October 2005.AverageMaximu m
Minimu m
International Standard Industrial Classification, Revision 2
Source :111 
121 122130210220230390311312313314321322323
324
331332
341
342Description
Agricultural and livestock production
ForestryLoggingFishingCoal miningCrude petroleum and natural gas productionMetal ore miningOther miningFood productionOther food products and animal feedsBeveragesTobacco manufacturingTextilesManufacture of wearing apparel, except footwearLeather products, except footwear and wearing apparelFootwear, except vulcanized rubber or plastic footwearWood and wood products, except furnitureManufacture 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 coalproductsManufacture of rubber products n.e.s.Manufacture of plastic products n.e.s.Pottery, china and earthenwareManufacture of glass and glass productsOther non-metallic mineral productsIron and steel basic industriesNon-ferrous metal basic industries
Fabricated metal products, except machinery and equipmentNon-electrical machinery including computersElectrical machinery apparatus, appliances and suppliesTransport equipmentProfessional and scientific equipmentOther manufacturing industriesElectrical energy351
352353354
355
356361362369371372381
382
383
384
385390410427.9%
100150200250
 
 WT/TPR/S/177/Rev.1 Trade Policy Review 
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Table IV.14 
Main indicators of aerospa ce equipment manufacturing, 2002 
 
Value-added at 
factor cost   
(€ million) Persons 
employed Number of 
enterprises Turnover 
(€ million) Apparent labour 
productivity in 
manufacturing
(€ 000) R&D spending 
(% value added) Investment 
(% value added)
Austria 18 397 36 36 60.7 26 6 
Belgium 603 7,621 54 1,364 65.2 11 16 
Czech Republic 82 8,142 100 353 13.0 21 21 
Denmark 29 503 35 77 58.2 .. 11 
Finland 38 679 9 62 68.7 0 5 
France 6,379 82,247 392 37,631 51.5 28 19 
Germany 5,711 75,028 209 15,341 56.5 17 15 
Hungary 21 1,349 95 58 13.9 0 68 
Italy 2,013 28,563 126 5,401 42.5 .. 17 
Lithuania 2 320 11 6 6.2 0 11 
Netherlands 246 4,668 65 724 63.8 .. 9 
Poland 162 14,400 40 275 16.1 .. 23 
Portugal 31 2,235 25 67 20.0 0 15 
Slovak Republic 4 568 7 9 9.8 12 26 
Slovenia 1 59 11 3 17.4 0 14 
Spain 847 13,321 110 2,225 41.5 .. 32 
Sweden 655 10,440 151 1,501 54.8 29 8 
United Kingdom  11,231 106,117 716 25,225 59.7 17 10 
EC 29,086 363,900 2,255 91,841 45.3 .. .. 
.. Not available. 
Note:  Data unavailable for Greece, and confidential for Ireland, Estonia, Latvia, Luxembourg a nd Malta.  There is no economic activity 
 in this subsector for Cyprus. 
Source: Eurostat (2006) , Statistics in Focus: Manufacture of Ae rospace equipment in the European Union, Table 1, 
 Brussels.  
(b) Automotive 
65. The automotive industry is a key subsector for the EC economy, contributing 3% to GDP, 7% 
to total manufacturing value added (more than  €100 billion), and 6% to total manufacturing 
employment (over 2 million workers). It also provides indirect employment to 10-11 million people; however, a number of car manufacturers have recently  announced job cutting programmes. In 2003, 
most of the workers in the industry were employed in Germany (over 40% of total EC workers in the 
auto industry), followed by Fran ce (16%), the United Kingdom (13%), Spain (11%), and Italy (7%). 
Despite a decline in motor vehicle production, fro m 17.2 million units in 2001 to 16.8 million units in 
2003, mainly due to a reduction in demand as a result  of the worsening economic situation, the EC is 
the largest automotive production region in the world (34%). By 2010, the EC car fleet is expected to 
increase substantially, mainly as result of rising car ownership in the NMS-10.
98  
66. The automotive industry has, undergone a long period of consolidation through mergers and 
acquisitions. It accounts for over 20% of manuf acturing R&D (e.g. hybrid cars and hydrogen 
technologies) in the EC (over €20 billion). Traditio nally, the industry has enjoyed a trade surplus 
(€35.8 billion in 2002, with  €66.2 billion in exports).99 Tariff protection on motor vehicles is 
relatively low, with tariffs averaging 6.4%, but ranging up to 22% (Table AIV.2). 
67. The EC's automotive industry is highly re gulated with over 90 Directives ranging from the 
construction to the functioning of motor vehicles, in cluding in the fields of safety and environment. 
                                                      
98 European Commission (2006b). 
99 EC online information. Viewed at: www.europa.eu.int/comm/enterprise/automotive_en.htm 
[14 July 2006]. European Communities WT/TPR/S/177/Rev.1 
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The lack of an internal market and of harmoniza tion in certain areas (e.g. technical regulations on 
motor vehicles and parts, and vehicle taxation) has also been repeatedly criticized for distorting the 
market and increasing costs. The EC's auto industr y lags behind the United States and Japan in terms 
of productivity.100 
68. On 12 December 2005, the EC adopted a ten-year roadmap aimed at increasing the 
competitiveness of its automotive industry.  The fo llowing four major recommendations were agreed 
to make cars cleaner and safer, and to simplify th e EC's legal framework: (i) simplification and better 
regulation through, inter alia , the replacement of 38 Directives by UN Economic Commission for 
Europe (UNECE) regulations; (ii) promoting the environment to reduce pollutant emissions from 
vehicles; (iii) improving road safety with specific measures (e.g. electronic stability control, seatbelt 
reminders, and brake assist systems); and (iv) better ma rket access in third countries, particularly in 
China, through the DDA complemented by bilatera l approaches. Proposals on the follow-up to these 
recommendations are due by the end of 2006, and there will be a mid-term review of progress, and technological developments in 2009.
101 
(c) Chemicals 
69. The EC is the world's leading chemicals produc ing area;  it has a turnover of €440 billion, and 
accounts for 28% of world production.  In 2001, chemicals was the EC's main manufacturing subsector in terms of value added (12% of manufact uring value added), and contributed 2.4% to total 
GDP. The chemical industry is capital intensive, but still employs 1.9 million people. 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 is further processed within the industry.
102 MFN tariffs on 
industrial chemicals and basic i ndustrial chemicals average 4.7%103, with rates ranging up to 50.9% 
(AVE) (Table AIV.2). 
70. Chemicals represents about one quarter of th e EC's entire manufacturing trade surplus: in 
2004, exports amounted to €102 billion, while impor ts reached €62 billion. Germany is the largest 
chemicals producer in Europe, and together with France, Italy, and the United Kingdom produce 61% 
of the EC's chemicals output. Environmental expe nditure in the chemicals, rubber and plastics 
industries amounts to 3.5% of their value adde d, and accounts for 23% of EC environmental 
protection expenditure for all industries.104 
71. The chemicals subsector is heavily regula ted with over 40 Directives and Regulations. The 
key policy objective is to ensure a smooth transition from the existing legislation to the new 
regulatory framework for chemicals called REACH (re gistration, evaluation, and authorization of 
chemicals). The aim of REACH is to secure a high level of protection for human health and the environment, while ensuring the efficient functio ning of the internal market, and stimulating 
                                                     
 
100 The existence of a large home market is a ma jor competitive advantage for EC manufacturers. 
However, recent data indicate that labour costs are ap proaching levels in the United States, and remaining 
higher than in Japan and Korea (Rep. of), partly due to labour market inflexibility in the EC.  Car manufacturers 
in the EC have also only recently started to address th e challenge of mass motorization in low income, emerging 
economies (European Commission, 2005c). 
101 EC Press Release IP/05/1564, 12 December 2005. 
102 EC online information. Viewed at: www.europa.eu.int/comm/enterprise/chemicals/index_en.htm 
[14 June 2006]. 
103 The EC participates in the Chem ical Tariff Harmonization Agreement. 
104 European Commission (2005c). WT/TPR/S/177/Rev.1 Trade Policy Review 
Page 108 
 
 
innovation and competitiveness.105 The REACH legislation is expected  to be adopted by the end of 
2006, with entry into force around April 2007.  The new European Chemical Agency, established by 
REACH, has to be fully operational one year after the entry into force of the le gislation. The agency's 
tasks are, inter alia , to ensure the consistent application of the system, and to manage the database of 
all registered chemicals. The direct costs of REACH to the chemicals industry are estimated at 
€2.3 billion over an 11 year period.106 
(d) Textiles and clothing 72. The EC is the world's largest importer of tex tiles and clothing products , and exporter of textile 
goods; it ranks second in the world in term s of exports of clothing products.
107 In 2004, the subsector 
accounted for 6% of total EC trade: imports am ounted to €75.6 billion (€77.6 billion in 2002), and 
exports to €83.8 billion (€85.4 billion in 2002). In 2 004, China was the origin of 22% of textile and 
clothing imports (13.9% in 2002). The subsector  accounts for 4% of total EC manufacturing 
production and employs over 2.5 million people (8% of  manufacturing's work force).  In 2004, 
197,858 firms, mostly SMEs, had a co mbined turnover of €208 billion. 
73. Since 1995, there have been steady declines in both value added (-1.2% per year) and 
employment (-3%), but accompanied by productivity gains (2%). Because of its labour-intensive 
character, the subsector has around half the productivi ty of manufacturing, with textiles displaying 
much higher productivity than clothing due to resp ective capital intensity. Within the EC, productivity 
varies widely (it is lower than average in all NMS-10), and there is strong regional concentration 
within Member States.108 MFN tariffs on textiles average 7.4%, with rates ranging up to 12% 
(Table AIV.2). 
74. The textile and clothing subsector does not enjoy any specific incentiv es. However, like any 
manufacturing industry, it can benefit from incentiv es listed in the guide of "Grants and Loans from 
the EC". In addition, it can take advantage of acti ons that specifically target sub-contracting activities 
(10-60% of total activities in the subsector).109 
75. The EC does not apply quotas on imports of  textile and clothing products from WTO 
Members, except for certain textile products originating in China, wh ere specific agreed levels have 
been set until the end of 2007. Under bilateral agreements with non-WTO members, quantitative 
restrictions are in place for Belarus (Chapter III(2)(vii)).110  In 2004, EC imports of textiles and 
clothing under quota represented less than 10%  of total imports of these products.111  
                                                      
105 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 (WTO, 2004). 
106 EC Press Release IP/03/1477, 29 October 2003. 
107 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 (European Commission, 2005c). 
108 For example, northern Portugal and the Flanders textile district in Belgium account for close to 80% 
of their respective national textile and clothing employment (European Commission, 2005c). 
109 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, 2004). 
110 In 2005, the EC and China agreed to limit Chinese export growth of textile and clothing products 
until 2007 (European Commission, 2005c). 
111 European Commission (2004). European Communities WT/TPR/S/177/Rev.1 
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(6) S ERVICES  
(i) Overview 
76. In 2005, the services sector (including constr uction services) accounted for 77.7% of the EC's 
gross value added, and represented a simila r proportion of overall employment (156 million 
people).112 The size of the sector varies considerably across Member States, and there is wide 
dispersion of service price levels within the EC.113 Moreover, services is now the priority as regards 
the completion of the single market, accounting for on ly 20% of intra-EC trade. The EC remains the 
world's leading exporter and importer of commercial  services (Chapter I(3)(ii)). The most important 
barriers to trade in services in the EC, include  monopolies and differences in regulation across 
Member States (Box IV.2).114 
77. On 13 January 2004, the Commission presented its  proposal for a Directive on Services in the 
Internal Market (the "Services Directive"). It ai ms to set out a framework for creating a genuine 
internal market for services through the removal of the remaining regulatory and administrative 
hurdles between Member States by 2010, on the basis of two key elements: freedom to establish a business in another Member State, and free-trade between Member States.
115 The Services Directive 
builds on the "fundamental freedoms" of the EC Tr eaty, including the freedom of establishment and 
the free-movement of services.116 The Commission regards the Services Directive as the most 
important framework for reforms since it is expected  to increase the EC's real GDP by 1.8 percentage 
points and create 2.5 million jobs. Despite these anticip ated benefits, the Services Directive met heavy 
opposition from various parties, in particul ar labour unions fearing "social dumping".117   
                                                      
 112 Between 2003 and 2005, employment in the services sector (including construction) increased by 
more than 2.2 million persons (Eurostat online info rmation. Viewed at: www.epp.eurostat.ec.europa.eu 
[October 2006]).  
113 In 2003, the highest levels of service prices we re found in Ireland, Finland, and France, and the 
lowest were in Greece and Portugal. The price disper sion shows that Member States, which had different 
starting points regarding service prices, are still in the pr ocess of converging towards the best performers in the 
single market (OECD, 2005c). 
114 The fact that nearly 90 % of all SMEs in the EC are in services industries makes the situation more 
problematic since SMEs normally cannot afford the extra costs of engaging in cross-border activities. 
115  The 2010 deadline was set by the Lisbon Strategy. The Services Directive covers around 50% of all 
economic activity in the EC, but does not include some subsectors (e.g. fi nancial services, transport, and 
telecoms) which are subject to other EC initiatives. The directive proposes, inter alia , mutual recognition 
between Member States for documents that allow companies to provide services; the introduction of "one stop 
shops" for permits to do business in  each Member State by 31 December 2008; and a ban on requiring permits 
unless they are justified in the general interest. Other el ements of the Services Directive are described in WTO 
(2004).  
116 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. 
117 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 
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 NMS-10 (OECD, 2005e). WT/TPR/S/177/Rev.1 Trade Policy Review 
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Box IV.2: Identified barriers to trade in services in the EC 
Monopolies  in some Member States have the effect of preven ting the establishment of service providers from other 
Member States. The monopoly concerned may be one that is entrusted to a specific body (e.g. postal services or 
energy utilities), a monopoly on the distribution of certain products,  or activities reserved exclusively for certain 
operators .  
Quantitative restrictions  on access to service activities (e.g.  quotas or rules  governing the number of service 
providers, rules on maximum surface area , or geographic distance  limits between service providers), can place 
established national operators at an advantage over new entr ants, for example, rules that limit opticians to one per 
10,000 inhabitants or driving schools to one per 15,000 inhabitants. 
Territorial restrictions  may require authorization to engage in services activities to a specific region or locality, so 
that service providers wishing to cover the entire nationa l territory are obliged to establish in several regions.  
Nationality requirements  exist in several Member States with respect to shareholders, management and staff of 
service enterprises, and with respect to some regulated professions.  
Residence requirements , particularly those relating to managers of service enterprises, may give rise to problems. 
For example, depending on the country, two thirds, one half, or at least one of the members of the management 
board must be resident.   
Some service activities are subject to rules designed to ensure independence and autonomy  between different 
activities, preventing them from being exercised jointly. In  one Member State, for example, estate agencies are 
prohibited from engaging in other professional activitie s (e.g. property management, financial consultancy). 
Regulations governing professional qualifications  differ. For example, a service provider from a Member State that 
has no requirement for a professional diploma, who wishes to become established in another Member State that has 
such a requirement will not find it easy to have professional qualifications recognized.  
The different company  tax regimes  result in obstacles for cross-border establishment of service providers.  Numerous 
problems result from the requirements to conform with 25 diff erent fiscal regimes. There is a risk of double taxation 
and compliance costs increase. 
Price regulations  applicable to a certain number of services, whether providing for maximum prices, minimum 
prices or prices set or recommended by Member States or professional bodies, are liable to cause problems in the 
case of cross-border service provision.  
It is often necessary to open a bank account  in the Member State in which a particular service is provided in order to 
facilitate payments, but this involves making a declaration of  residence or non-residence, which in turn gives rise to 
tax declarations and causes administrative delays and costs.  
Accounting rules  are designed, inter alia , to meet tax inspection needs; for this reason, they differ markedly across 
Member States. An enterprise that is active in several Member States is thus obliged to maintain parallel accounting 
systems, while ensuring consistency in the accounting of the enterprise as a whole. 
The payment and reimbursement of VAT  also causes problems. The rule under which services are subject to VAT in 
the country of establishment of the supplier is subject to exceptions, to ensure that taxation occurs at the place of 
consumption. This gives rise to complex situations in the context of cross-border supplies, and results in numerous 
service providers (e.g. furniture removal supplied to final consumers to be taxed at the place of departure) being subject to VAT obligations in Member States other than the one in which they are established. These difficulties 
could be mitigated if the Council adopted the proposal for a directive concerning the one-stop shop scheme. 
More favourable tax treatment  for services by local providers  is a major hindrance to the provision of services. For 
example, in some Member States the costs of professiona l training are tax-deductible only if the courses take place 
within the Member State). Similarly, life insurance and additional insurance policies, pension fund and investment 
fund contracts can be offset against tax only if concluded with local insurance companies. 
Difficulties encountered in the context of 
debt collection  are exacerbated by long delays of cross-border payments. 
One difficulty relates to the use of debt collection agencies and the protection of creditors’ rights in the event of bankruptcy in other Member States. An enterprise cannot use its debt collection agency if the latter is not established 
in other Member States: approval formalities for debt collection agencies differ between Member States and 
sometimes from one region to the next. 
Authorization for the reimbursement of medical costs  incurred in another Member State is only granted by national 
authorities under certain conditions, and this may discourag e persons insured under soci al security schemes from 
turning to service providers established in another Member State. Often, persons who decide for various reasons to 
travel to another Member State to receive medical treatment will not be reimbursed. 
Source: OECD (2005), The EU's Single Market: at your Service? . 
78. On 4 April 2006, the Commission adopted an amended version of the proposal for a services 
directive, eliminating the country of origin rule , which was designed to allow service providers to European Communities WT/TPR/S/177/Rev.1 
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observe the laws of their own country when operating in a different EC Member State; this clause has 
been replaced by a provision on the freedom to provide services. The revised version covers all 
services subsectors, with a few exceptions, most of which are dealt with under specific sectoral EC 
regulations: financial services, telecommunications , transport, port services, healthcare, social 
services relating to social housing, childcare and support of families and persons in need, activities 
connected with the exercise of official authority,  temporary work agencies, private security services, 
gambling, and audiovisual services.118 It will enter into force two years after its publication, although 
an additional year is foreseen to achieve the move to electronic administrative procedures, and to put 
in place single contact points.119 
79. Since the last TPR of the EC, some of the major developments in services are the completion 
of the Financial Services Action Plan (FSAP) 1999- 05, and the launching of a new financial services 
strategy 2006-10; progress on the implementation of  both the telecoms regulatory framework adopted 
in 2002, and the Postal Directive aimed at comp leting the internal market for postal services by 
1 January 2009; and progress on 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, engi neering and consultancy, certifi cation and testing services, and 
employment agencies.120  
80. Under the GATS, the EC scheduled commi tments across virtually all major service 
categories, and ratified the GATS Fourth and Fi fth Protocols on basic telecommunications and 
financial services.121 The EC maintains MFN exemptions under Article II of the GATS. The existing 
GATS schedules and lists of MFN exemptions of EC -12, EC-15 and, where relevant, the individual 
schedules of the Member States, are being replaced with consolidated documen ts covering the EC-25. 
Regarding the consolidated schedule of commitmen ts, the negotiations pursuant to Article XXI 
(Modification of Schedules) of the GA TS were concluded in September 2006122, and the new 
schedule will enter into force following the completio n of the certification procedure in the WTO and 
the internal decision-making procedure of the EC and its Member States, where applicable. The EC 
tabled its revised conditional offer in th e ongoing services negotiations in June 2005.123  
(ii) Financial services  
(a) Overview 
81. In 2004, the contribut ion of financial services to gross va lue added was particularly high in 
Luxembourg (36.5%) and Ireland (12.8%), while in the other Member States it ranged from 2% to 
9%. The EC's financial services are dominated by ba nks (banking assets amounted to 214% of GDP in 
2003), followed by insurance and securities. In 2004, 3.6 million persons were employed in financial 
                                                      
118 European Commission Press Release IP/06/442, 4 April 2006. 
119 On 24 July 2006, the Council adopted a common pos ition on the Services Directive. The text agreed 
by Member States maintained the political agreement reac hed in the European Parliament at the first reading, 
and reflected the Commission's ame nded proposal. The European Parliament approved the Directive on 
15 November 2006, and the Council in December 2006. 
120 These services activities are subject to the relevant provisions of the EC Treaty on the freedom to 
provide services and, where applicable, also to the provisions of the new Services Directive (European 
Commission, 2003b). 
121 See WTO (2004). 
122 In March 2006, the United States and the EC indi cated that they had signed a deal over the trading 
impact of EC enlargement ( WTO News Summary , 23 March 2006). 
123 WTO document TN/S/O/EEC/Rev.1, 29 June 2005. WT/TPR/S/177/Rev.1 Trade Policy Review 
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services in the EC-25.124 Accessing a bank account is the entry point for most consumers to financial 
services and markets. The price of certain services depends on the way they are supplied: estimates show that a 10% drop in bank-based financing (in favour of capital market financing) would reduce 
financing costs by the equivalent of 0.3% of the EC's GDP.
125 
82. The FSAP 1999-05 was the EC's central tool for fostering financial market integration 
through ensuring a single market for wholesale financial services, state-of-the-art prudential rules and supervision, and opening and securing retail markets.
126 Despite the progress achieved through the 
FSAP, institutional differences and cross-border barri ers between Member States continue to hamper 
the development of a unified market for financ ial services. The Commission has indicated that a 
further boost in the efficiency of pan-European markets for long-term savings products is needed 
urgently; the retail financial market is still fragmented127; and a better functioning risk capital market 
is required to promote new and innovative firms a nd to raise economic growth. At the same time, the 
EC's major structural economic challenge, its  pensions deficit, needs to be financed.128  
83. A new five-year financial services strategy w as launched on 5 December 2005. Its motto is 
"dynamic consolidation", and its key objectives ar e to consolidate the progress made under the FSAP; 
enhance supervisory convergence and cooperation; remove remaini ng barriers to fully integrate 
financial services markets; expand the EC's external influence in the world's financial markets; and 
implement a better regulation process based on open c onsultations, transparency, impact assessment, 
and evidence-based policy-making. Overall, the st rategy aims to provide the most advanced 
legislative apparatus for EC financial services provi ders, and to lower the cost of financing for all 
users of financial services.129  
84. As part of the new strategy, the Commission is currently working with Member States and 
stakeholders on a Code of Conduct on cross-border cl earing and settlement of transactions to improve 
their safety and efficiency and to lower their cost.130 The Commission has also proposed a directive to 
improve the transparency and legal certainty of the supervisory approval of acquisitions in the 
banking, insurance, and securities subsectors. C oncerning banking legislation, the Commission has 
started to review large exposure limits, and the de finition of capital and supervisory arrangements. 
Under the framework of the latter, the Commis sion will review issues like liquidity, crisis 
management, deposit guarantee scheme s, lender of last resort, winding up, and reorganization. The 
Commission is expected to publish a White Paper ou tlining the next steps for an efficient investment 
fund market before the end of 2006. In retail ba nking, two directives are currently under discussion: 
one to create a single market in consumer credit, while ensuring high levels of consumer protection; 
and the other to enhance competition and lower costs in the payments area, with the aim of creating a 
Single Euro Payments Area (SEPA) by 2010. A White Paper concerning mortgage credit will also be 
                                                      
124 According to the Labour Force Survey (Classifi cation of Economic Activities in the EC (NACE) 
Division 65), in 2004, Germany (20.9% of the EC-25 workforce) and the United Kingdom (19.5%) had the 
largest financial intermediation workforces in the EC-25,  nearly twice the size of those in Italy (11.8%) and 
France (11.3%).  
125 European Commission (2003a). 
126 The main elements of the FSAP and other complementing measures are described in WTO (2004). 
127 Retail financial services, for individuals and SMEs, are still not well integrated, as suggested by the 
limited convergence of interest rates (IMF, 2005). 
128 European Commission (2005h). 
129 EC Press Release IP/05/1529, 5 December 2005. 
130 The reasons for the high cost of cross-border transactions are tec hnical, legal, and fiscal obstacles, 
e.g. double taxation of income flows of  associated companies established in  different Member States (European 
Commission ,2005h). European Communities WT/TPR/S/177/Rev.1 
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published in 2007. Moreover, the Commission is examining the obstacles impeding users' mobility 
concerning bank accounts. 
85. In May 2005, banking supervisors, central  banks and finance ministries agreed on a 
Memorandum of Understanding on coopera tion in financial crisis situa tions, which entered into force 
on 1 July 2005. It applies to crisis situations with a potential for both cross-border and systemic 
consequences affecting credit ins titutions, banking groups or banki ng components of financial groups, 
as well as to other systemic disturbances with cross-border implications in the financial markets, including those affecting payment syst ems or other market infrastructures. 
(b) Banking 
86. The number of credit institutions in the EC-15 declined from 8,084 in 2001 to 7,444 in 2003, 
mainly as a result of mergers and acquisitions, wh ile the number of persons employed in banking 
remained relatively stable at about  2.8 million. About half of the total number of EC-15 banks are in 
Germany and France, but this proportion is decreasing due to the drop in the number of cooperative enterprises. In terms of density, Spain has the hi ghest number of local units per million inhabitants 
(about 1,000). 
87. According to the ECB
131, the most important structural developments in the EC banking 
subsector since 2004 include: (i) wh ereas the pace of consolidation h as declined steadily since the end 
of 2002, there are some indications of a possible revival of large crossborder deals132; banking profits 
have increasingly been generated by retail activitie s; increasing evidence of a change in funding 
structures, with on-balance-sheet and off-balance-sheet lending grow ing faster than deposits; banks 
appear to be transferring more risks to other sectors in the economy, instead of purely mediating 
between lenders and borrowers; and the role of banks seems to be moving away from the integrated 
provision of financial services towards a greater fo cus on core activities.  There are still significant 
differences between the structures of banks across EC countries but these are expected to diminish 
over time.133 
88. The Committee of European Banking Supervisors (CEBS) started operating on 
1 January 2004134, as part of a set of measures to improve EC financial market regulation.  The main 
tasks of the CEBS are: providing advice to th e European Commission on EC legislation in the 
banking sector; contributing to co nsistent implementation of EC legislation across the EC; and 
promoting convergence of supervisory practic es and of cooperation between supervisors.135 
89. The regulation of the banking system in the EC continues to be based on the single European 
passport principle, and prudential supervision of banks according to the home country control 
principle.136 Member States must not apply more favourab le EC provisions to foreign bank branches 
                                                      
131 European Central Bank Press Release, 7 October 2005. 
132 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. 
133 According to the ECB, these differences (e.g. in terms of concentration, ownership structure, foreign 
presence) are expected to diminish gradually both as a consequence of increased mergers and acquisitions, and 
due to the increasing importance that banks have been attaching to the creation of shareholder value. In the long-
term, this might affect EC banks' performance and risk-r eturn trade-offs, with a possi ble bearing on the capacity 
of banks to absorb shocks. 
134 Decision 2004/5/EC, 5 November 2003. 
135 CEBS online information. Viewed at: http://www.c-ebs.org/ [8 June 2006]. 
136 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 WT/TPR/S/177/Rev.1 Trade Policy Review 
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than those applied to branches of credit institutions having their head  office within the EC. However, 
the EC may agree to apply identical provisions to branches having their head office within or outside 
the EC when the principle of reciprocity is observe d by the country in which the head office of the 
foreign bank branch is based.137  In addition, banks are subject to EC rules on competition and state 
aid (Chapter III(4)(ii)). 
90. Although the single passport has fostered cross-border branching (the market share of cross-
border branches in the EC reached 24% of GDP in 2002), banking in the EC remains somewhat 
fragmented. Furthermore, only some 5% of bank cr edit is granted across borders, and the variety of 
mortgage products is still limited in many Member  States. As a result, three major retail banking 
initiatives are under way: (i) on 10 October 2005, a m odified proposal for a Directive was published, 
aimed at creating a genuine internal market for c onsumer credit and improving  consumer protection; 
(ii) a White Paper will be released in 2007 with me asures to integrate the EC mortgage credit market; 
and (iii) a Single European Payment Area (SEPA) is to be created by 2010.138  
91. The revised framework for the Internati onal Convergence of Capital Measurement and 
Capital Standards (Basel II139) was released in June 2004.  Basel  II has been introduced into EC 
legislation by recasting the Codified Banking Direc tive and the Capital Adequacy Directive.  Member 
States will have to amend national law to incorporate the news rules, which will become applicable as 
from 2007.140 
92. According to EC legislation, Member States shall not treat branches of third country credit 
institutions more favourably than those having thei r head office in the EC. However, the EC may 
enter into agreements with third countries and, a ccordingly, treat branches of third country credit 
institutions in an identical way throughout the EC.  
(c) Insurance 93. In 2004, 1.3 million people were employed  in the EC-25 insurance and pension fund 
subsector.
141 According to the latest available data, the insurance subsector has continued to 
consolidate142, while total investments of insurance co mpanies increased from €4,595 billion in 2000 
to €4,670 billion in 2001. These enterprises wrote €764 billion of gross premiums in 2001 (excluding 
reinsurance), up from €759 billion in 2000, making the EC -15 insurance market the third largest in the 
world, behind the United States and Japan. Life insurance represented 63% of total direct gross 
premiums in 2001; when growth decreased slightly , for the first time since 1994. On a per capita 
                                                                                                                                                                     
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 an any other Member State on whatever basis it considers most advantageous. A bank, including foreign banks, may establish a 
branch or subsidiary, or may acquire another bank, in another Member State. Subsidiaries thus incorporated in a 
Member State can then have a sub-br anch – or provide banking services directly – in another Member State, 
while remaining under the regulatory/supervisory contro l of the Member State wher e they are incorporated. 
137 Directive 2006/48/EC. 
138 European Commission (2005h). 
139 Basel II is a global regulatory framework designed to encourage best practices in risk management 
and minimum capital requirements in banking.   
140 The European Parliament and the EC Council adopted the final legislative text in September and 
October 2005, respectively.  At the end of 2005, the Basel Committee on Banking Supervision undertook a fifth 
quantitative impact study of the new capital rules. 
141 Classification of Economic Activities in the EC (NACE) Division 66) (Eurostat, 2006a). 
142 In 2001, there were 4,608 insurance companies in the EC-15 (down 2.1% from 2000) handling: non-
life insurance (56.3%), life insuran ce (25%), specialist reinsurance (13% ), and composite insurance (5.7%) 
(WTO, 2004). European Communities WT/TPR/S/177/Rev.1 
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basis, average spending on life insurance is highest  in the United Kingdom and in Finland, and lowest 
in Greece and Austria; average spending is more uniform in the non-life area.143 
94. According to the ECB, the euro area insura nce industry further impr oved its profitability and 
capital base in 2005, despite signi ficant losses incurred by reinsurers as a result of the damage caused 
by hurricanes.144 Non-life insurers' balance sheets were strengthened by an improvement in the 
profitability of the underwriting business, which was th e result of strict pricing discipline.  In life 
insurance, lower guaranteed rates of return on sav ings products contributed to the improvement in 
profitability, as did cost savings.  Furthermore, ongoi ng reforms of public pension schemes in the euro 
area favoured the placement of private savings in life  insurance products.  A decline in the values of 
policies sold contributed to a decr ease in profitability for reinsurance. The creation of 12 new start-up 
reinsurers was announced in 2005 .  The additional capacity that may be brought to the global 
reinsurance sector, from mostly private e quity funds, would be about US$8-12 billion.145 
95. Insurance undertakings have also benefite d 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 compan y, 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 such objectives, the EC has dealt with life insurance and non-life 
insurance separately to take account of their specific characteristics.  In add ition, the EC has separate 
legislation on specific areas:  motor vehicle lia bility insurance, annual accounts and consolidated 
accounts of insurance undertakings, and legal prot ection insurance, and credit and suretyship 
insurance.  
96. The key legislative development under-way in the subsector is the Insurance Solvency II 
project, which intends to overhaul EC regulation and supervision, and make it compatible with Basel 
II and other international developmen ts in supervision and financial reporting. Risk-based calculations 
of the solvency requirements for insurance undert akings are to be introduced, and calculation of 
insurance liabilities (technical provisions) will be harmonized, while fostering the convergence of 
supervisory practices.  The Commission plans to table its proposal in mid 2007.
146 
97. A Reinsurance Directive, adopted by the EC Council on 7 November 2005, allows 
reinsurance undertakings authorized by their home Member State to undertake business throughout 
the EC through the single passport.147 To obtain such authorization, EC reinsurers will need to meet 
strict requirements.  The Directive aims to fill th e gap in current European insurance legislation, 
which does not provide for regulation of specialized reinsurers. It also updates EC life, non-life, and 
insurance directives in line with the supe rvision rules for reinsurance undertakings. 
98. The EC Insurance Directives provide for rul es regarding third country insurance undertakings 
only as far as establishment of branches and agencies in  the EC is concerned. The freedom to provide 
services in third countries is not regulated at EC leve l. Matters not dealt with in EC legislation remain 
within the competence of the Member States, subj ect to the general provisions of the EC Treaty. 
                                                      
143 Spending in Luxembourg is inflated by the premiums written for non-residents. 
144 European Central Bank (2006). 
145 European Central Bank (2005). 
146 European Commission (2005h). 
147 Directive 2005/68/EC, amending Council Directives 73/239/EEC, 92/49/EEC, 98/78/EC and 
2002/83/EC.  Following its adoption, Members States have two years to implement Directive 2005/68/EC. WT/TPR/S/177/Rev.1 Trade Policy Review 
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(d) Securities 
99. The stock exchanges of five Member States – London, Euronext Paris, Deutsche Börse, Italy, 
and Euronext Amsterdam – are among the world's te n largest in terms of market capitalization of 
domestic companies, but in each case, well below th at of the New York Stock Exchange (NYSE), the 
world leader.148 Following a sharp decrease in the value of market capitalization during  2000-03, 
European equity markets have improved as a result of, inter alia , better performance of technology, 
media, and telecommunication compan ies. Recent developments suggest  that consolidations involving 
some leading European exchanges are likely to take  place, even in a wider trans-Atlantic context. 
100. The establishment of the EC's single secur ities market was to be completed in 2004.149 To 
fulfil this objective, the Markets in Financia l Instruments Directive (MiFID) was adopted on 
27 April 2004, replacing the 1993 Investment Services Directive (ISD).150 The MiFID gives 
investment firms an effective singl e passport, allowing them to opera te throughout the EC on the basis 
of authorization in their home country. 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 invest or transactions by exchanges, other trading 
systems and investment firms.151 The MiFID implementing measures, which were adopted by the 
European Commission in August 2006, are aimed at  ensuring harmonized implementation across the 
EC. Member States have until 31 Janua ry 2007 to implement the MiFID;  firms are required to comply 
as from 1 November 2007.152 Furthermore, the EC has developed securities legislation referring to 
prospectuses (Prospectus Directive and its implemen ting measures, in force as of 1 July 2005) and 
preventing insider trading and market manipulatio n (Market Abuse Directive and its implementing 
measures, in force as of 12 October 2004). 
101. Mutual funds (known as undertakings for colle ctive investment in tr ansferable securities 
(UCITS)) are also under the single passport regime. Since 1986, mutual funds licensed by their home 
countries have been able to offer units for sale throughout the EC. New UCITS rules entered into 
force (UCITS III Directive) in 2004, aimed at, inter alia , making UCITS more competitive by 
expanding the range of asse ts eligible for investment (e.g. deri vatives and money market instruments). 
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 2005, the Commission adopted a Green Paper on the enhancement of the EC  framework for investment funds, which defines 
the future agenda for investment funds in the EC on the basis of four main objectives: (i) ensuring 
good implementation of the existing legal framework
153; (ii) exploring ways to improve the efficiency 
of the fund industry on a Pan-European basis (e.g . streamlining the passport procedure, cross-border 
                                                      
148 On 1 June 2006, the merger of Euronext Paris and the NYSE was announced. The new group is to 
be called NYSE Euronext, and will create the world's biggest global stock exchange, with a market value of      
€15 billion. BBC News, 1 June 2006. 
149 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 current  legislation for being complex and ill-adapted to 
requirements, owing to the lack of harmonization. WTO (2002).  
150 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets 
in financial instruments, amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council, and repealing Council Directive 93/22/EEC and Council Directive 
93/22/EEC of 10 May 1993 on investment services in the securities field. 
151 European Commission Press Release IP/04/546, 27 April 2004. 
152 On 15 June 2006, the draft MiFID was endorsed by the European Parliament, and on 26 June 2006, 
it was approved by the European Securities Committee (E SC).  European Commission Press Release IP/06/846, 
26 June 2006. 
153 According to the Commission, this objective has already been met. European Communities WT/TPR/S/177/Rev.1 
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fund mergers, and management company passport); (iii) ensuring that investors' interests are at the 
heart of the distribution process; and (iv) addressing  the issue of the scope of the UCITS Directive, 
considering the developments of new products outsi de its framework, such as alternative investments 
and real estate funds. The next steps for its implemen tation will be set out in a White Paper due at the 
end of 2006. 
102. Under the current ISD, which will remain in force until November 2007, Member States are 
not expected to treat branches of third-country i nvestment firms more favourably than those having 
their head office in the EC. Under the MiFID,  which will replace the ISD as from November 2007, 
branch authorization procedures already operating in the Member States should continue to apply. 
The MiFID is to carry on the ISD system, provided that there is no competitive disadvantage for EC 
firms. There is no authorization requirement for third-country firms under the MiFID. 
(iii) Telecommunications and postal services 
103. The EC's telecommunications services market  was valued at €291 billion in 2005 (up from   
€270 billion in 2003), roughly on a par with the United States market. In 2005, revenue from the 
subsector increased by around 2.2%, due largely to an increase in mobile and broadband investments 
(Table IV.15).154 However, growth has been uneven across Member States, and 23 percentage points 
separate the best from the worst in terms of broadband penetration.155 During 1998-05, the cost of 
national calls in the EC fell by 17%, while the price of international calls decreased by 45%.156  The 
differences in telecoms prices are very small between old and new Member States.157  
104. Competition is driving fixed and mobile te lecommunications operators to invest in new 
technologies to reduce costs and position themselves in a converged environment. Operators are 
beginning to offer a portfolio of services, with di fferent combinations of low-cost voice (including 
mobile), internet access, and audiovisual content to attract and retain customers. The value of cross-
border investment, including mergers and acquisitions, is estimated at more than €70 billion in 2005, 
its highest level since 2000.158 Capital expenditure by incumben t operators reaches approximately 
15% of their revenue.  The number of public fi xed voice telephony operators rose from 635 in 1998 to 
1,237 in 2004, but the number of major competitors remains low in most Member States.159  However, 
at September 2005, almost 32% of EC-15 subscribers use an alternative provider to route international 
calls, while 23% were using alternative providers fo r local calls.  Competition in the EC's fixed voice 
market is still largely based on indirect acces s to wholesale products such as carrier-preselection 
(CPS) and carrier-selection (CS).160 In the mobile market, compe tition has increased as the leading 
operators’ market shares have d eclined over the last few years.  Local loop unbundling, both full and 
shared access, is the main wholesale access for new entrants, followed by bitstream. Prices for both 
                                                      
154 Almost 93% of EC consumers now have a mobile phone, 47% are connected to the internet, and 
15% of the population had a broadband subscription. 
155 European Commission (2005b). 
156 Since 2000, the EC's weighted average charge fo r a 3 minutes call has decreased by 65%, while that 
of a 10 minutes call has fallen by 74%. 
157 European Commission (2005d). 
158 The largest EC incumbent players had 15% non-do mestic EC revenue shares on average in 2005. 
European Commission (2005b). 
159 European Commission (2005d). 
160 CPS and CS services allow customers to use an alternative operator for calls, while still using the 
access line provided by the incumbent operator. As such , these wholesale products have been key to the 
development of retail competition in the EC's fixed voice market. Following strong early growth, the percentage 
of subscribers using alternative pr oviders has begun to slow down. Direct access competition, where the 
alternative operator provides the voice services over a line forming part of its own network to the customer (e.g. a cable line, an unbundled line or some other mean s of access as wireless), is still relatively weak. WT/TPR/S/177/Rev.1 Trade Policy Review 
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full unbundled and shared access lines are declini ng, although unevenly, across the EC. The number 
of operators offering VoIP services has recently  increased significantly, and these services are now 
available in most Member States.161  
Table IV.15 
Selected telecommunica tions indicators, 2005 
 
Main 
telephone 
lines ('000) Main lines 
per 100 
inhabitants Cellular 
mobile 
subscribers 
('000) Cellular 
subscribers 
per 100 
inhabitants Internet 
users ('000) Internet 
users per 
100 
inhabitants PC's ('000) 
Austria 3,705 45.32 8,160 99.82 4,000 48.93 4,996 
Belgium 4,801 45.96 9,460 90.80 4,800 46.07 3,627 
Cyprus 420 50.30 719 86.09 298 36.93 249 
Czech Republic 3,217 31.48 11,776 115.22 5, 100 49.97 2,450 
Denmark 3,350 61.69 5,469 100.71 2,854 52.55 3,543 
Estonia 442 33.26 1,445 108.75 690 51.92 650 
Finland 2,120 40.39 5,231 99.66 3,286 63.00 2,515 
France 35,700 59.01 48,058 79.44 26,154 43.23 35,000 
Germany 55,046 66.57 79,200 95.78 37,500 45.35 45,000 
Greece 6,303 56.69 10,042 90.31 1,955 17.62 986 
Hungary 3,356 33.24 9,320 92.30 3,000 29.71 1,476 
Ireland 2,033 49.01 4,210 101.49 1,147 27.64 2,011 
Italy 25,049 43.12 72,200 124.28 27,900 48.03 18,040 
Latvia 731 31.69 1,872 81.13 1,030 44.65 501 
Lithuania 801 23.39 4,353 127.10 1,222 35.67 533 
Luxembourg 245 52.58 720 154.83 315 67.74 290 
Malta 202 50.40 324 80.79 127 31.73 67 
Netherlands 7,600 46.63 15,834 97.15 10,000 61.63 11,110 
Poland 11,803 30.63 29,166 75.70 10,000 25.95 7,362 
Portugal 4,234 40.35 11,448 109.09 2,951 28.03 1,402 
Slovak Republic 1,197 22.16 4,540 84.07 2,500 46.29 1,929 
Slovenia 816 41.50 1,759 89.44 1,090 55.41 808 
Spain 18,322 42.92 41,328 96.81 15,119 35.41 12,000 
Sweden 6,447 71.54 8,437 93.31 6,800 75.46 6,861 
United Kingdom 33,700 56.35 61,091 102.16 37,600 62.88 35,890 
EC-25 9,266 45.05 17,847 99.08 8,298 45.30 7,972 
Bulgaria 2,484 32.14 6,245 80.83 1,592 20.60 461 
Romania 4,391 20.22 13,354 61.51 4,500 20.76 2,450 
Source: ITU (2006), Telecommunications Indicators , Geneva. 
105. The deadline for implementing the telecoms regulatory framework was 25 July 2003 for EC-
15 and 1 May 2004 for NMS-10.162 However, some Member States missed this deadline, forcing the 
Commission to take measures to bring them into  line with the applicable legislation.  By 
October 2006, most Member States had notified to th e Commission their telecoms market reviews, as 
required by the new regulatory framework.163  On 29 June 2006, the Commission tabled plans to boost 
competition among telecoms operato rs and build a single market for services that use radio 
                                                      
161 Voice over Internet Protocol (VoIP) allows voi ce calls via a broadband internet connection, instead 
of a regular (or analog) phone line. 
162 In 1999, the Commission launched a major review of the telecoms subsector.  The review resulted 
in the adoption of a new regulatory framework in March 2002. 
163 EC Press Release IP/06/1439, 20 October 2006. European Communities WT/TPR/S/177/Rev.1 
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spectrum164; while in July 2006, the Commission  tabled a legislative initiative to further reduce the 
cost of using mobile phones when travelling within the EC.165 For that reason, the EC recently 
launched a roaming website with the aim of increasing transparency, and bringing more competitive pressure to bear. The EC is also currently discussi ng the possibility of adopting specific regulations to 
bring down international roaming pr ices. The EC's telecoms regulatory framework is based on the 
regulation of markets rather than of technologies, and is aimed at, inter alia , establishing a 
harmonized regime across Member States; promoting 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 service, processing of personal data and rights to 
privacy.
166 
106. The EC's electronic communications regulat ory framework consists of six directives: 
(i) Framework Directive setting out the key principles, objectives, and procedures; (ii) Authorization Directive introducing a light system of general authorization for electronic communication services 
and networks (e.g. fixed and mob ile networks, data and voice services), instead of individual licences, 
to facilitate entry in the market and reduce ad ministrative burdens on operators; (iii) Access and 
Interconnection Directive stipulating procedur es and principles for imposing pro-competitive 
obligations (regarding access to, and interconnection of, networks) on operators with significant 
market power (SMP)
167; (iv) Universal Service Directive requi ring a minimum level of availability 
and affordability of basic electronic communication services and guaranteeing a set of basic rights for users and consumers of electronic communication services; (v) Privacy and Electronic 
Communications Directive setting out rules for the protection of privacy and of personal data 
processed in relation to communications over pub lic communication networks; and (vi) Commission 
Competition Directive, which consolidates the legal measures that have liberalized the 
telecommunications subsector over the years.
168 
107. Other legislative instruments of the teleco ms regime include: the Radio Spectrum Decision, 
which establishes principles and procedures for the development and implementation of an internal 
and external EC radio spectrum policy (it does not  require transposition by Member States); the 
Commission guidelines on market analysis and the assessment of SMP, which set out a common methodology and principles for the national regulator y authorities (NRAs) charged with these tasks
169; 
and the Commission recommendation on relevant ma rkets, which defines a list of 18 relevant 
electronic communications markets to be examined. 
                                                      
164 The Commission proposes to phase out ex-ante regulation in at least 6 of the existing 18 telecoms 
market segments, including those for national and international calls. For markets where competition is not yet effective (e.g. broadband supply), the Commission wants EC  rules applied more effectively so as to step up 
competition throughout the single market. The Commission intends to propose legislative measures to 
Parliament and Council at the end of 2006 (EC Press Release IP/06/874, 29 June 2006). 
165 The Commission wants to reduce costs by up to 70% by ensuring that prices paid by consumers for 
roaming services within the EC are not unjustifiably hi gher than those for calling within their own country. 
Provided that the Parliament and Council support the Commission proposal, the new EC regulation could come 
into effect by summer 2007 (EC Press Release IP/06/978, 12 July 2006). 
166 The basic rights and obligations of the telecoms regime are described in WTO (2004). 
167 An undertaking is deemed to have SMP if, either individually or jointly, it enjoys a position 
equivalent to dominance.   
168 The Commission is currently undertaking a review of the electronic communications framework to 
examine how well it has achieved its objectives, and whether it should be changed in the light of recent and 
forthcoming technological and market developments. 
169 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. WT/TPR/S/177/Rev.1 Trade Policy Review 
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108. Four institutions are in charge of the mana gement, implementation, and further development 
of the new regulatory framework: (i) the Communi cations Committee has regulatory and advisory 
functions on implementation issues arising from the six Directives; (ii) the Radio Spectrum Committee deals with technical implementing me asures aimed at harmonizing frequency allocation 
and developing common external radio spectrum po licy objectives; (iii) the European Regulators 
Group contributes to consistent application of the ne w framework in all Member States; and (iv) the 
Radio Spectrum Policy Group provides a platform for high-level national decision-makers to coordinate their views on radio spectrum policy, and to provide the Commission with relevant policy 
advice. 
109. According to the Commission, the independe nce of the NRAs from commercial interests has 
in general been ensured, although concerns remain  in some Member States as regards separation of 
ownership and regulatory functions.
170 Generally, the NRAs have ensured that the necessary 
regulation is in place for competition purposes, and reference unbundling offers, for example, are now 
available across the EC. Neverthele ss, the Commission is examining, inter alia , issues related to: 
(i) local loop unbundling; (ii) effective interconnecti on; and (iii) cost accounting systems suitable for 
ensuring interconnection.171  
110. Implementation of EC rules relating to tran sparent and non-discriminatory granting of rights 
of way is also a concern in a number of Member States. As regards designation of the universal service provider, the Commission has concerns that certain Member States have a priori  excluded 
players (mainly new entrants).  Currently, th e Commission is reviewing the legal instruments 
(including the Recommendation on Relevant Markets)  that make up the electronic communications 
framework.  It is examining the framework's prin ciples and implementation.  The three main areas 
where the Commission is considering revision are:  (a) putting in place an effective market-oriented 
strategy for spectrum management in the internal  market;  (b) streamlining the market review 
procedure, to make it faster and less burdensome;   and (c) consolidating the single market, by 
ensuring that EC rules and remedies are applied consistently across all Member States. 
111. According to the latest available figures, EC  postal revenues amounted to €90 billion in 2004 
(almost 1% of EC GDP) in 2004, with the s ubsector providing over 4.5 million jobs. The EC 
framework for postal services, set out by the Postal Directive
172, is aimed at improving the quality of 
service, maintaining the universal postal service for EC citizens, and completing the internal market 
for postal services by 1 January 2009.173 Other key elements of the Postal Directive are: further 
opening of the market, including progressive reduction of the reserved area by 1 January 2006174, and 
the liberalization of outgoing cross-border ma il, except for Member States with exceptional 
circumstances; the prohibition of cross-subsidization of universal services (outside the reserved area) 
                                                      
170 There are also concerns relating to possible limits to the powers of NRAs to enforce their decisions, 
due to limits on the level of fines that can be imposed (European Commission, 2005b). 
171 The Commission considers that the cost accountin g systems put in place in a number of Member 
States are still underdeveloped or lack transparency (European  Commission, 2005b). 
172 Directive 97/67/EC as amen ded by Directive 2002/39/EC. 
173 In 2006, the Commission will complete an evaluation, for each Member State, of the impact on 
universal services of the completion of the internal mark et in 2009. On the basis of  the study, the 2009 deadline 
is to be confirmed (or changed) with the agreemen t of both the European Parliament and the Council 
(Com (2005) 595 final).  Under the current regulatory framework for electronic communications, the NRAs 
should, under the supervision of the Commission, carry out market analyses for each of the relevant markets 
included in the Commission recommendation. 
174 As of 2006, the reserved area is limited to the distribution of correspondence items weighing less 
than 50 g and whose price is less than 2.5 times the basic tariff. Germany, the Netherlands, which together 
account for almost half of Community letter post, are considering the possib ility of abolishing the reserved area 
before the end of 2007. According to the Commission, the UK has already abolished the reserved area. European Communities WT/TPR/S/177/Rev.1 
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with revenues from services in the reserved area, unless this is strictly necessary to fulfil specific 
universal service obligations; and the applicati on of the principles of transparency and non-
discrimination whenever universal service provide rs apply special tariffs. According to the 
Commission, Member States have largely comple ted the transposition of the postal framework. 
Growth of postal revenues has recently been strong in most EC countries, with some Member States 
improving their profitability by more than four percentage points between 2002 and 2004. 
Nonetheless, the performance of some countries has deteriorated recently.175 
(iv) Transport 
(a) Overview 112. Transport accounts for 7% of EC GDP, around 5% of employment (more than 10 million 
jobs), and 71% of total oil consumption.
176  During 1995-04, transport demand grew by 2.8% a year 
for goods and 1.9% for passengers. However, there is unequal growth in the different modes of 
transport. Road transport accounted for 44% of the goods transport market over the period, followed 
by 42% for waterborne transport (39% for short-sea shipping routes177, and 3% for inland waterways), 
10% for rail, and 0.1% for intra-EC air; on the passenger transport market, road accounted for 84%, 
rail for 7%, and air for 8% (Table IV.16). Some of  the main problems faced by the subsector include 
congestion on the main road and rail routes, in cities,  and at certain airports; environmental and public 
health concerns; poor road safety; security threats;  and, in general, difficulties in implementing the 
Treaty of Rome common transport policy. 
Table IV.16 
Transport by mode, 1995-04 
(Per cent unless otherwise specified) 
 Road Rail Waterborne Airborne 
Employment (million)   
  Passenger transport  
  Freight transport  
1.7  
2.6   
1.2 
..  
0.2 
..  
0.4 
.. 
Share in total freight transport  44 10 42 0.1 
Share in total passenger transport 84 7 1 8 
Growth between 1995-04  
  Passengers  
  Freight  
  Container  
24  
35  
..  
9  
6  
..  
..  
29  
13.5  
55  
..  
n.a. 
Share in total energy consumption 25.2 0.8 0.5 4.0 
Vehicle efficiency (toe/Mpkm) trucks 72.4 
cars 37.8 
public 14.5 passengers 16.0  
freight 5.5  17.5 n.a. 
.. Not available. 
n.a. Not applicable. 
Source: Commission of the European Communities (2006), Keep Europe moving:  Sustainabl e mobility for our continent, 
 Mid-term review of the European  Commission's 2001 Transport White Paper , Brussels.  
                                                      
175 European Commission (2005d). 
176 Road transport uses 60% of all oil consumed in the EC and air transport accounts for some 9%;  rail 
transport uses roughly 75% of electricity and 25% of fossil fuels. EC online information.  Viewed at: 
www.ec.europa.eu/transport/transport_ policy_review/doc/2006_transport_policy_review_en.pdf [1 July 2006]. 
177 Short-sea shipping is the trans port of goods between EC-25 ports. A wider Eurostat definition also 
includes Bulgaria, Romania, and Norway on one hand, and ports located in geographical Europe, or the 
Mediterranean and Black Seas on the ot her. Using this wider definition, in 2004, short-sea shipping in the EC 
amounted to 1.8 billion tonnes of goods (63.4% of total EC maritime transport) (E urostat, 2005c), "Maritime 
Transport of Goods and passengers 1997-2003". WT/TPR/S/177/Rev.1 Trade Policy Review 
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113. The 2001 White Paper, "European transport pol icy for 2010: time to decide", proposes an 
action plan aimed at bringing about substantia l improvements in the subsector by developing a 
modern, sustainable, transport system for 2010. It  suggested about 60 measures to make transport 
efficient, of high-quality, and safe; and, at the same time, to shift the balance between modes of 
transport by revitalizing the railways, promoting sea and inland waterway transport, controlling the 
growth in air transport, and developing intermoda lity by combining road-rail, sea-rail or rail-air (for 
passenger) transport.178 On 22 June 2006, the mid-term review  of the White Paper concluded that 
additional measures are required, including: the defi nition of an action plan on logistics by 2007; 
reviewing the legislation working conditions in road  transport by 2007; removing technical barriers on 
rail transport interoperability and promoting rail fre ight corridors by 2006-07; completing the "single 
European sky" framework by 2007; adopting White Paper on a Common European Maritime Space by 2008; publishing an Urban Transport Green Pape r by 2007; and achieving better representation of 
EC interests in international organizations.
179 
114. The Marco Polo and Galileo programmes are tw o of the key measures that resulted from the 
White Paper. Some of the main objectives of Marco Polo, adopted on 22 July 2003, are to reduce road 
congestion, to improve the environmental performance of the freight transport system, and to enhance 
intermodality. To achieve this, Marc o Polo supports actions in all segments of freight transport, 
logistics, and other relevant markets.180 On 15 July 2004, the Commission proposed Marco Polo II, 
with a budget of €400 million over the period 2007-13.  It includes new action, such as motorways of 
the sea, and traffic avoidance measures. Galileo is a joint initiative by the EC (represented by the 
Commission), and the European Space Agency (ESA).181 It is to be fully operational from 2010, and 
is the first global satellite navigation system designed, inter alia , to resolve mobility and transport 
problems by providing positioning services. Financ ial aid of €1,005 million is envisaged for 
developing Galileo during 2007-13.182 
115. All modes of transport in the EC have been liberalized since 1993.  However, a few 
restrictions remain;  for example, there is not yet cabotage in rail freight transport, nor market opening 
in rail passenger transport. Libera lization of cabotage in the other modes of transport in the EC 
occurred in stages: 1 January 1993 for inland wa terway transport; 1 April 1997 for air cabotage, 
1 July 1998 for road transport; and 1 January 1999 for maritime cabotage.183   
116. The European Regional Development Fund (E RDF) and the Cohesion Fund contribute to the 
financing of transport infrastructure in the EC . Mo reover, financial aid of €8,013 million is envisaged 
for developing the Trans-European Transport Netw ork (TEN-T) over the period 2007-13 (for EC-27), 
                                                      
178 WTO (2004). 
179 DG Energy and Transport (2006). 
180 Marco Polo should help to regain the 1998 freight levels between the various transport modes, by 
shifting the expected aggregate increase in international road freight traffic of 12 billion tonnes annually to 
short-sea shipping, rail, and inland wate rways, or to a combination of modes of transport in which road journeys 
are as short as possible. Marco Polo had a budget of €75 million for the EC-15 during 2003-06, with each NMS-
10 contributing to the budget (WTO, 2004). 
181 The European Commission is responsible for the political dimension of Galileo and for setting 
objectives; ESA is responsible for the technical definition, development, and validation of Galileo. The Galileo 
Joint Undertaking will be 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 (WTO, 2004). 
182 EC Memo 06/213, 24 May 2006. 
183 See WTO (2004). European Communities WT/TPR/S/177/Rev.1 
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almost double the amount available during 2000-06.184 The European Investment Bank (EIB), which 
is geared towards regional development,  also funds transport infrastructure. 
117. Foreign companies that establish themselves as legal entities in the EC are subject to the same 
transport regulatory framework as EC companies. On  air transport, the Commission is responsible for 
negotiating EC air service agreements to replace existing bilateral agreem ents concluded by its 
Member States. The provision of maritime transport services in the EC, and between its Member States and third countries, was liberalized in 1986. Ca rgo sharing is incompatible with EC law. The 
liberalization of maritime transport between ports of the same Member State has made it possible for any EC  ship-owner to provide services in another Me mber 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. 
(b) Road transport 118. Road transport dominates the carriage of goods and passengers in the EC, and freight 
transport is estimated to increase by 50% by 2010. The EC has about 58,000 km of motorways (up from 54,000 km in 2000), with Germany, France, and Spain accounting for almost 60% of the total. In 
2004, Germany had a 22% share of the total intra- and extra-EC international transport in tonnage 
terms, followed by France (15%), Belgium (11%), and the Netherlands (11%).
185 In 2004, 
international intra-EC road freight transport to talled 790 million tonnes. The average road freight 
vehicle load was 12.9 tonnes (15.9 tonnes for international transport and 12 tonnes for national).186 
119. Cabotage on EC territory nearly doubled between 1999 and 2004, with a 24% increase from 
2003 to 2004.187 In 2004, one third of all cabotage transport in the EC was in France (4.6 billion tonne 
kilometres (tkm)), and a quarter in Germany (3.8 bi llion tkm). Cabotage transport by hauliers from all 
Member States (except Greece and Malta) reached 14.6  billion tkm in 2004, an overall 20% increase 
for the period 2003-04. Cabotage by the NMS-10 was only 6% of the total for the EC-25, and over half of this was carried out by Polish hauliers (hal f a billion tkm).  This is because hauliers from most 
of the NMS-10 still face legal restrictions.
188 
120. In order to further improve the functioning of road transport, th e Commission has made 
proposals on, inter alia , the initial and periodic training of professional drivers; harmonized rules for 
national driving bans on lorries; and charging heavy goods vehicles for the use of certain infrastructures. In addition, new rules on working times for professional drivers have been introduced, 
as well as a "driver's certificate" to make it possible to check that the driver is lawfully employed. 
Moreover, the Commission is considering adopting other measures, such as: addressing the excessive 
differences in road tax levels among Member States; and implementing an integrated approach to road 
safety, focusing on issues such as vehicle design and technology. 
                                                     
 
184 EC Memo 06/213, 24 May 2006. 
185 Eurostat (2005c)  "Road Freight Transport by Origin" . 
186 Road transport accounts for 84% of CO 2 emissions attributable to the transport subsector (WTO, 
2004).  
187 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 trans port tonnage in Belgium, Fran ce, Italy, Sweden and the 
United Kingdom is taken by carriers from other EC countries (Eurostat, 2005c), "Road Freight Transport by 
Origin". 
188 Eurostat (2006c), "Road Freight Transport 1999-04: Cabotage and Transport with non-EC 
Countries". WT/TPR/S/177/Rev.1 Trade Policy Review 
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(c) Rail transport 
121. The total length of railway lines in the EC is over 200,000 km. The share of goods carried by 
rail in the EC-15 has decreased from 21%  in 1970 to about 8% currently.189 Nevertheless, between 
2003 and 2004, goods tran sported by rail in the EC increased by 4.3%.190 New high-speed rail 
services have resulted in a significant increase in lo ng-distance passenger transport. Rail transport is 
key for achieving a balanced intermodal transport sy stem in the EC. The Commission has identified a 
number of structural obstacles to the competitiven ess of rail transport, such as: low levels of 
interoperability, lack of mutual recognition of rolling stock and products , weak coordination of 
infrastructure and interconnection of IT systems, and the problem of single wagon loads.191 
122. The EC aims to establish an in tegrated European railway area by, inter alia , completing the 
legal framework for rail freight transport by 2007;  liberalizing cross-border passenger rail services by 
2010; and joining the Intergovernmental Organiza tion for International Carriage by Rail (OTIF).192 To 
achieve this, two rail infrastructure packages have been adopted since 2001, and a third was proposed 
by the Commission on 3 March 2004.193 The Commission is also cons idering implementing the rail 
transport acquis  with the help of strong regulatory bodies in Member States; removing technical and 
operational barriers to international rail activities with  the help of the rail industry and the European 
Railway Agency; promoting a rail freight oriented ne twork within a broader transport logistics policy; 
and rail market monitoring including a scoreboard.194 
(d) Maritime transport 123. The EC is very dependent on maritime transport (including in land waterway transport), which 
accounts for over 90% and 40% of its external and internal trade, respectively. The subsector, 
including shipbuilding, ports, fi shing and related industries and services, employs over 2.5 million 
people in the EC. Maritime companies of EC nationa ls control one third of the world fleet; the EC 
shipbuilding industry holds approximately 20% of the world capacity.
195  In 2003, 413 million persons 
passed through EC ports (up from 335 million in 2000)196, while the transport of goods through EC-25 
ports reached 3,393 million tonnes (up from 3,211 million tonnes in 2001).197 With 556 million 
tonnes, the United Kingdom handled the most seabor ne goods (16.5% of the entire EC-25 maritime 
transport), followed by Italy (14%), the Netherlands  (12%), and Spain (10%). Nevertheless, maritime 
transport capacity in the EC remains largely under-used.198 
                                                      
189 A freight train in the EC travels at an average speed of 18 km per hour.  Rail must improve speed 
and service levels if it is to attract freight traffic fr om (EC Press Release IP/03/378, 14 March 2003 and WTO, 
2004). 
190 The highest increases of goods transported by rail were recorded in Germany (7,946 million tkm) 
and the United Kingdom (3,818 million tkm), while a decline was recorded in France, the Czech Republic, the 
Slovak Republic and Spain (Eurostat, 2006c), "Rail Goods Transport between 2003 and 2004". 
191 European Commission (2006e). 
192 The OTIF drafts regulations on, for example, the carriage of dangerous goods by rail. 
193 WTO (2004). 
194 European Commission (2006e) . 
195 In 2005, 7,205 new orders for merchant ships were received (com pared with 2,341 in 2002). The 
annual turnover of shipyards represented by the Community of European Shipyards Associations (CESA) in 2003 was €14.4 billion in merchant shipbuilding, and €2.1 billion in ship repair (CESA Press Release, 
9 February 2006).  
196 Passengers are counted twice, once as they embark  and again as they disembark, overestimating the 
actual journeys made. 
197 Eurostat (2005c), "Maritime Transport of  Goods and passengers, 1997-2003".  
198 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. European Communities WT/TPR/S/177/Rev.1 
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124. 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".199 Some of 
its key objectives are: removing remaining obstacles to  internal trade; permitting the EC to set high 
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.
200 
125. Differences between the international mariti me transport system (MARPOL Convention) and 
the United States maritime transport system, meant that, as from 2005, single-hull oil tankers banned 
from United States waters on account of their age st arted operating in other parts of the world, 
including the EC.  As a result, an Agreement w ithin the International Maritime Organization (IMO) 
was reached in 2004 to ban single-hull oil tankers.201 An EC Regulation was thus adopted to 
accelerate the phasing-in of the double hull or e quivalent design requirement for single-hull oil 
tankers, entering into force on 7 January 2005.202 
126. 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. 
(e) Air transport 127. Air transport of passengers in the EC-25 r eached 650.4 million in 2004 (590 million in 2003), 
with the United Kingdom accounting for 29.6% of the total, followed by Germany (20.9%), Spain 
(20%), France (15.7%), and Italy (12.6%). The t op ranked EC airport in terms of passenger numbers 
in 2004 was London/Heathrow with 67 million (10% of total EC-25 ai r passenger transport), followed 
by Paris/Charles de Gaulle (51 million), and Frankfurt (50 million).
203 Air freight transport (including 
mail) in the EC-25 rose to almost 10.7 million t onnes in 2004 (9.7 million tonnes in 2003), with 
France, Germany, the Netherlands, and the United Kingdom accounting for over three quarters of the 
total.204 The low-cost airline market in the EC has e xpanded significantly  since 11 September 2001; it 
now accounts for 25% of all scheduled intra-EC air traffic.205 This, in turn, has stimulated the growth 
of regional airports. The restructuring process of airlines has continued, including through mergers 
and alliances.206 
                                                      
199 COM (2006) 275 final, 7 June 2006 . 
200 European Commission (2006e) . 
201 In single-hull vessels, oil in the cargo tanks is separated from the seawater only by a bottom and a 
side plate, while double-hull tankers surround the cargo tanks with a second internal plate at a sufficient distance 
from the external plate. 
202 EC Regulation No. 2172/2004, 17 December 2004, amending EC Regulation No. 417/2002. 
203 In terms of number of passengers, Heathrow was ranked third worldwide in 2005, Charles de Gaulle 
seventh, and Frankfurt eighth. 
204 Eurostat (2006c), "Air Transport in Europe in 2004".  
205 The main low-cost carriers are Ryanair and Easyje t. In 2005, Ryanair carried 35 million passengers 
on 346 routes across 22 European countries with a fleet of over 100 aircraft and 3,500 staff;  Easyjet carried 
29.6 million passengers on 258 European rout es with a fleet of over 100 aircraft.  
206 In July 2005, the European Commission approved the takeover of Swiss by Lufthansa (Lufthansa 
Press Release, 5 July 2005). WT/TPR/S/177/Rev.1 Trade Policy Review 
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128. Air transport in the EC has been liberalized in three successive stages, in the ten years up to 
1997;  air carriers established in the EC free have a ccess to the market to pr ovide services within the 
EC, including cabotage within individual Member St ates. Air carriers can set fares and rates freely, 
and no longer have to submit them to national authorities for approval. Since the applied regulatory 
framework is over a decade old, the Commission adopted  a proposal for its revision on 18 July 2006, 
seeking to address shortcomings, as well as modernizi ng and simplifying, in a single legislative text, 
the legal framework of the EC's aviation market. 
129. The completion of a "single European sky" is  the main EC policy aim in the subsector. The 
following measures are envisaged: reduction of fragmentation in the sky through the creation of 
airspace blocks that extend beyond national frontie rs; establishment of a strong EC regulator; gradual 
integration of civil/military management; introduc tion of interoperability standards; and better 
coordination of human resources policy on air traffi c control activities. To this end, the EC has 
adopted several regulations since it last TPR.207  In addition, the Commission is considering other 
actions, such as: continuing to monitor the state aid and competition aspects of restructuring and integration; reviewing the functioning of the internal market and proposing adjustments where 
needed; implementing modernization of air traffi c management; and developing policy measures to 
contain emissions from air transport services.
208  
130. On 17 February 2005, common rules entered into force on compensation and assistance to air 
passengers in the event of denied boardi ng and cancellation or long delay of flights.209  The legislation 
covers scheduled and non-scheduled flights, and app lies to all airlines leaving an EC airport, and all 
airlines licensed by an EC Member State and flyi ng from outside the EC to the EC.  Airlines are 
obliged to inform passengers of their rights unde r this regulation, which could include financial 
compensation, reimbursement or re-routing, meals and hotels, as well as general assistance.210   
131. To enhance European air safety and passenger protection, and following a series of aircraft 
accidents involving EC citizens, a common air transport policy entered into force in January 2006.211  
It authorized the Commission to ban or restrict the activities of unsafe airlines within the EC. An 
initial list was established of airlines considered to be unsafe, and therefore not permitted to fly 
passenger or cargo in the EC or operate within European airspace.212 
132. In October 2006, the Commission revised the block exemption for passenger tariff 
conferences for the purpose of interlining213, as well as for slot allocation and airport scheduling.214 
For routes within the EC, tariff conferences will no longer be exempted as of 1 January 2007. The 
Regulation exempts tariff conferences on routes between the EC and the United States or Australia 
until 30 June 2007, and routes between the EC an d other non-EC countries until 31 October 2007. 
                                                      
207 The Framework Regulation No. 549/2004; the Service Provision Regulation No. 550/2004; the 
Airspace Regulation No. 551/2004; and the In teroperability Regulation No. 552/2004. 
208 European Commission (2006e) . 
209 EC Regulation No. 261/2004. 
210 Airlines are not obliged to pa y compensation if they can prove that the cancellation is caused by 
extraordinary 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).   
211 EC Regulation No. 2111/2005. 
212 EC Regulations No. 2111/2005, No. 474/2006; and No. 910/2006. 
213 Interlining occurs when a passenger travels with mo re than one airline or alliance on the same ticket. 
Most EEA airlines, including all flag carriers, are Members of IATA a nd take part in twice-yearly conferences 
where they agree fares for inte rline journeys (WTO, 2004). 
214 The new regulation supersedes Commission Regulation (EC) No. 1105/2002, of 25 June 2002, on 
agreements and concerted practices concerning joint planning and coordination of schedules, joint operations, consultations on passenger and cargo tariffs on scheduled air services, and slot allocation at airports. European Communities WT/TPR/S/177/Rev.1 
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However, airlines benefiting from the block exemp tion on routes between EC and non-EC countries 
must provide the Commission with data on interlini ng to allow it to consider whether the exemption 
for those routes should be extended beyond those dat es. The new Regulation will also end the block 
exemption for International Air Transport Asso ciation (IATA) slots and scheduling conferences.215  
(v) Tourism 
133. The EC maintains its leading position in worl d tourism, both as a main source and destination 
of international tourist flows. It accounted for 55% (414 million) of arrivals worldwide in 2004, 
including both tourists travelling between EC count ries and tourists travelling from outside the EC. 
Six EC countries (France, Spain, Italy, the United Kingdom, Austria, and Germany)  are among the ten 
leading tourist destinations in the world.  However,  tourist arrivals are growing at a lower rate than 
world average, and the EC's share in the world mark et has declined by around three percentage points 
since 2004.216 The subsector contributes about 4% to the EC 's real GDP, and accounts for 30% of the 
total value of external trade in services.217 About two million tourism enterprises, 99% of which are 
SMEs, employ around 4% of the EC's labour force, representing close to eight million jobs. As regards tourism by EC citizens, on average, three out  of four remain within the EC every year. The 
accommodation structure remained relatively stable after EC's enlargement, with the number of bed 
places increasing from 9.9 million in 2003 to about 11 million currently.
218 
134. On 21 March 2006, the Commission tabled a new strategy to boost tourism in the EC.  It is 
based on: (i) more policy coordi nation between Member States and tourism stakeholders; (ii) 
improved use of available EC financial instrument s; (iii) the Commission will present, by 2007, a 
proposal for an "Agenda 21 for tourism"; (iv) bette r regulation; (v) enhanc ing understanding of the 
importance of tourism by providing all decision-make rs with high quality data; (vi) improving the 
visibility of tourism through events organized, inter alia , by the EC presidencies and the Annual 
European Tourism Forum; and (vii) be tter promotion of EC destinations.219 
135. Numerous tourism initiatives receive fundi ng from EC programmes; the most important 
programmes are the Structural Funds (i.e. ERDF, ESF and EAGGF).  During 2000-06, about 
€8 billion was allocated to the subsector through th e Structural Funds (compared with ECU 7.3 billion 
over 1994-99). In addition, many local tourism ac tivities benefit from financ ial support through other 
EC programmes, such as those aimed at improvi ng the competitiveness of SMEs, restoration of 
cultural heritage, and environmental protection.  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, regiona l, and local sources, both public and private. 
                                                      
215 Consultation with industry revealed that, in th eir present form, these conferences are compatible 
with EC competition rules. 
216 EC Press Release IP/06/344, 21 March 2006. 
217 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 close to 11% to real GDP and provides more than 24 million jobs (12% of the EC's labour force). According to the Commission, travel and tourism jobs 
will increase by 2 million during the next decade (EC onlin e information. Viewed at: www.europa.eu.int/comm/ 
enterprise/services/tourismeu.htm). 
218 The NMS-10 added about 800,000 beds, i.e. around 8% of the EC-15 capacity (WTO, 2004). 
219 As many tourists see Europe as a single destination, the Commission has launched a new web portal 
(www.visiteurope.com) to promote EC destinations. It will be managed by the European Travel Commission (EC Press Release IP/06/344, 21 March 2006). European Communities WT/TPR/S/177/Rev.1 
 Page 129 
 
 
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