RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG39/2
8 July 1998
(98-2713)
Committee on Regional Trade Agreements Original:  English
ESTABLISHMENT OF THE EUROPEAN UNION, SERVICES
Questions and Replies
This document reproduces questions addressed to the European Communities and their
Member States (EC) and the responses provided by them.  The questions and replies are organized in
accordance with document WT/REG39/1.
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I. BACKGROUND INFORMATION ON THE AGREEMENT
4. Economic and Trade Data
We would like to register its interest in the economic and trade data.  It would be
appreciated if the EC could submit this as early as possible.
 
 The following data is being provided:
  
- a chart showing the import and export of tr ade in services (current account) between
the EC(12) and the rest of the world. It should be noted that trade data after 1995relates to EC(15) which is not the subject of this examination (see Annex I);
 
 - an extract of the yearbook on statistics giving a breakdown of import and export
between the EC(12) and the rest of the world and on intra-Community trade (see
Annex II).
 
 There is currently no comprehensive data available on trade by foreign affiliates.
  
 
II. PROVISIONS AFFECTING TRADE IN SERVICES
 
 2. Elimination of Discriminatory Measures
5. Rules of Origin for Community Companies
We would like to ask for the elaboration of the relationship between a judicial person
under Article 58 of the EC Treaty (ECT) and th e service supplier under GATS Article V:6.  Are
they both naturally regarded as the same?  Also, what is an "effective and continuous link" in
Article 58 of the ECT?  How can we recognize th at there exists an effective and continuous link
between a company and a Member State?WT/REG39/2
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We would also like to ask the EC for clarification of "subsidiaries of third country
national" and of "third country branches".  Are they treated as companies under in Article 58
of the ECT or not?
 
 The requirement for "a real and continuous link" is designed solely to prevent the abuse of the
European Economic Community through the creation of a so-called "letter-box" operation in one of
the Member States of the EEC, in order to circumvent controls imposed by the other on access by
foreign nationals and companies to its market.
 
 The phrase "a real and continuous link" is the equivalent of the language "substantive
business operations" in GATS Article V, para 6.  Under the EC definition of this phrase, initially used
in the "General Programme" of 15 January 1962, it is expressly excluded that a real and continuous
link should depend on the nationality of the partners, of the members of the management of
supervisory bodies, or of the persons holding the capital.
7. Safeguards
Article 115 of the ECT seems to provide for "restrictions on cross-border provision of
services".  Does this mean that all modes of supply will be restricted, if technically feasible?  We
understand that the measure will not be taken to restrict the activities of a foreign company or
firm to which Article 58 of the ECT applies (post-establishment).  Is this understanding correct?
Has such a measure already been taken in the past?  If so, in which area and in what
kind of form?
 
 Article 115 of the ECT is an exceptional measure. It has so far not been invoked or applied in
the area of trade in services. If Article 115 was to  be invoked, the EC would do so in compliance with
its international obligations including the treatment granted to third countries on commercial presence.
 
8. Subsidies and State-aid
According to Article 92 of the ECT, there are two types of subsidies which are
compatible with the common market.  Subsidies compatible with the common market are listed
in page 9 of WT/REG39/1.  Some of the aid is no t clear, such as (a) aid to promote the execution
of an important projects of Common European interest, and (b) aid to facilitate the
development of certain economic activities or of certain economic areas.  Such unclear
provisions could lead in the end to a restriction in the free supply of services.
 
 The types of aid referred to in 92 (2) (i.e. aid having a social character, granted to individual
consumers, without discrimination relating to origin and aid for damage caused by natural disasters)
are compatible with the common market because by their very nature they neither distort nor threaten
to distort competition by favouring certain undertakings or the production of certain goods.
9. Public Procurement
It is stated that one of the main principles of the public procurement directives is "the
banning of technical specifications liable to discriminate against potential foreign bidders".  We
appreciate such a measure, but how can non-discrimination be implemented?
The procedural rules contained in the relevant EC Directives applying to public procurement of
services and construction services (see directives 92/50 and 93/37 referred to in standard format), areWT/REG39/2
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in line with recognised international standa rds, such as the WTO Agreement on Government
Procurement.
In addition there is also a mechanism at European  Community level, to ensure that the rules on
public procurement are complied with by the purchasing entities.  A two-pronged approach is thus
followed. Besides the enforcement powers with which the Commission is endowed (see below), a
mechanism has been created intended to allow for an effective and rapid review of decisions taken by
purchasing entities on the initiative of aggrieved suppliers. These review procedures must be
transparent in themselves and provide the necessary guarantee of independence (see directives 89/665
and 92/13 referred to in standard format).
The European Commission, the EU’s executive body, plays a variety of roles in ensuring
compliance with the EC rules. It monitors the actual application of these rules and verifies whether the
(economic and political) objectives of the requirements are actually met. If it finds that rules are notcomplied with, it can take enforcement action against the Member State concerned on the basis of
article 169 of the ECT. Such enforcement action can be filed confidentially. According to the wording
of Article 169, the Commission “shall deliver a reasoned opinion on the matter” if it “considers that a
Member State has failed to fulfil an obligation made under this Treaty”. If the State concerned doesnot comply with that opinion the Commission “may bring the matter before the Court of Justice.”WT/REG39/2
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Annex I
EU Current Account – Trade in Services (partner World)
Figures in Millions of ECU
1992 1993 1994 1995 1996
EU 12 Exports 326,807 343,755 362,463 367,977
EU 15 Exports 411,776 434,607
EU 12 Imports 317,740 334,397 354,629 366,390
EU 15 Imports 409,603 428,442
EU 12 Net 9,067 9,358 7,834 1,587
EU 12 Net 2,173 6,165
EU Current Account - Trade in Services (partner World)
050,000100,000150,000200,000250,000300,000350,000400,000450,000500,000
1992 1993 1994 1995 1996
Year
EU 12 Exports
EU 15 Exports
EU 12 Imports
EU 15 Imports
EU 12 Net
EU 12 NetWT/REG39/2
Page 5Annex II
Reporter:  EU(12) - Partner:  World
(Million ECU)
1992 1993 1994 1995
Credit Debit Net Credit Debit Net Credit Debit Net Credit Debit Net
GOODS 1,113,259 1,121,309 -8,050 1,125,389 1,069,808 55,581 1,251,292 1,181,807 69,485 1,382,177 1,295,605 86,573
SERVICES 326,807 317,740 9,067 343,755 334,397 9,358 362,463 354,629 7, 834 367,977 366,390 1,587
Transportation 82,664 85,902 -3,238 86,806 87,839 -1,033 91,289 93,873 -2,584 92,436 98,294 -5,858
Sea transport 31,005 38,197 -7,192 33,900 39,187 -5.287 36,354 42,847 -6,493 35,301 44,218 -8,917
Air transport 30,505 27,446 3,059 32,352 28,419 3.933 33,777 30,222 3,555 35,917 32,884 3,033
Other transport 21,155 20,259 896 20,554 20,234 321 21,157 20,803 354 21,218 21,192 26
Travel 95,561 91,237 4,324 98,846 95,462 3,384 103,950 100,863 3,086 110,088 105,194 4,894
Other services 135,754 134,247 1,516 148,491 146,448 2,043 158,049 155,191 2,858 159,815 159,848 -33
Communications services 4,350 4,992 -641 4,018 4,675 -657 4,242 4,996 -754 5,212 6,236 -1,024
Construction services 10,779 7,134 3,645 11,857 7,796 4,061 12,010 8,296 3,713 13,478 9,639 3,839
Insurance services 11,723 12,043 -320 14,336 13,733 603 16,691 14,864 1,827 16,070 14,792 1,277
Financial services 16,318 11,630 4,687 19,318 13,801 5,517 22,886 17,078 5,806 20,464 14,423 6,041
Computer and information services 2,658 3,494 -836 3,598 4,190 -592 4,472 4,767 -295 4,794 5,129 -335
Royalties and licence fees 8,118 12,903 -4,786 9,146 14,169 -5,023 10,332 15,348 -5,016 10,866 16,132 -5,266
Other business services 62,283 63,191 -908 67,462 69,082 -1,620 69,239 70,449 -1,210 72,792 73,942 -1,151
Personal, cultural and recreational 5,218 8,155 -2,937 5,534 7,641 -2,106 5,810 7,941 -2,132 5,546 8,515 -2,969
Government services, n.i.e 14,316 10,704 3,612 13,222 11,363 1,859 12,367 11,449 918 10,595 11,040 -445
Services not allocated 12,818 6,353 6,465 9,612 4,627 4,985 9,176 4,703 4,473 5,637 3,054 2,583
INCOME 363,001 387,500 -24,499 400,572 424,940 -24,368 404,485 439,180 -34,695 418,431 448,014 -29,583
Compensation of employees 12,910 11,716 1,194 13,226 12,747 479 12,751 12,247 504 12,903 13,183 -280
Investment income 350,092 375,784 -25,692 387,346 412,193 -24,846 391,734 426,933 -35,199 405,528 434,851 -29,324
CURRENT TRANSFERS 129,965 159,902 -29,937 137,749 164,759 -27,010 138,667 170,810 -32,143 148,058 173,091 -25,033
CURRENT ACCOUNT 1,933,033 1,986,451 -53,418 2,007,465 1,993,904 13,561 2,156,908 2,146,426 10,481 2,316,643 2,283,100 33,543
CURRENT + CAPITAL
ACCOUNT 1,950,608 2,005,700 -55,092 2,024,229 2,012,831 11,398 2,171,995 2,166,210 5,785 2,934,518 2,902,371 32,147WT/REG39/2
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Reporter:  EU(12): - Partner:  Intra-EU(12)
(Million ECU)
1992 1993 1994 1995
Credit Debit Asym. Credit Debit Asym. Credit Debit Asym. Credit Debit Asym.
GOODS 676,092 635,838 40,254 642,185 578,432 63,753 716,890 644,790 72,099 793,689 716,695 76,994
SERVICES 157,214 162,382 -5,168 167,945 168,363 -418 178,772 179,816 -1,044 184,034 187,606 -3,571
Transportation 35,057 41,175 -6,118 36,352 40,663 -4,311 39,093 43,815 -4,723 42,103 48,760 -6,657
Sea transport 12,011 18,382 -6,371 13,198 18,429 -5,231 14,438 20,196 -5,758 14,683 21,184 -6,501
Air transport 10,127 10,535 -408 10,711 10,622 89 11,585 11,564 20 13,073 13,187 -114
Other transport 12,919 12,259 660 12,442 11,611 831 13,069 12,055 1,014 14,347 14,389 -42
Travel 50,999 49,911 1,087 55,929 51,492 4,437 59,633 55,072 4,561 63,021 58,123 4,898
Other services 63,880 67,806 -3,926 70,307 73,736 -3,429 74,929 78,234 -3,305 75,656 78,961 -3,305
Communications services 1,453 2,040 -586 1,385 1,748 -363 1,604 1,914 -310 2,209 2,543 -334
Construction services 4,167 3,607 560 4,440 3,627 813 3,949 3,844 105 4,833 4,419 414
Insurance services 5,700 6,584 -884 6,448 7,652 -1,204 7,867 8,605 -738 7,188 8,476 -1,288
Financial services 7,872 7,002 870 10,056 8,353 1,703 11,888 10,033 1,855 10,806 8,290 2,516
Computer and information services 1,315 1,626 -311 1,832 2,056 -224 2,006 2,200 -194 2,119 2,493 -374
Royalties and licence fees 3,016 4,169 -1,153 3,458 4,480 -1,022 3,990 4,892 -901 4,161 4,810 -649
Other business services 33,795 33,350 445 35,589 36,230 -641 36,958 37,228 -271 36,161 36,456 -295
Personal, cultural and recreational 2,038 3,404 -1,366 2,345 3,389 -1,045 2,298 3,251 -953 2,142 3,440 -1,298
Government services, n.i.e 4,525 6,025 -1,500 4,754 6,201 1,446 4,370 6,267 -1,897 4,039 6,035 -1,996
Services not allocated 7,278 3,489 3,789 5,357 2,471 2,886 5,118 2,694 2,423 3,254 1,762 1,493
INCOME 169,322 193,769 -24,448 193,999 224,258 -30,259 203,418 238,886 -35,538 209,048 244,568 -35,521
Compensation of employees 6,117 7,463 -1,346 6,253 7,939 -1,686 6,448 7,970 -1,523 6,885 8,596 -1,710
Investment income 163,205 186,306 -23,101 187,746 216,319 -28,573 196,870 230,886 -34,016 202,163 235,973 -33,810
CURRENT TRANSFERS 113,485 119,217 -5,732 126,086 124,757 1,329 126,519 129,331 -2,812 131,334 131,863 -529
CURRENT ACCOUNT 1,116,113 1,111,207 4,906 1,130,215 1,095,810 34,405 1,225,598 1,192,893 32,705 1,318,105 1,280,732 37,373
Asymmetry = (Credit EU 12 with intra EU 12) – (debit EU 12 with intra-EU 12)
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