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PRESS/TPRB/65
12November 1997
WTO IMPLEMENTATION AND SINGLE MARKET COMPLETION
LEAD TOGREATER LIBERALIZATION IN
THE EUROPEAN UNION
TheEuropeanUnion'ssinglemarketprogrammeandliberalizationundertheWTOhavegenerally
improved access conditions fortheEU'strading partners andincreased exposure oftheEUeconomy
tointernational competition andstructural change, saysanewWTO Secretariat report. However,
despite progressive liberalization, there arestillsignificant internal obstacles toefficient resource
allocation. These imply higher costsinsome industrial andservices sectors withadverse consequences
ongrowth andcompetitiveness. Thepresent transitional period inEuropean economic integration
presents challenges bothfortheEUandthemultilateral trading system.
*
TheWTO Secretariat report ontheEU'stradepolicies andpractices covers changes since the
lastTrade Policy Review, heldin1995. TheWTO report, along withapolicy statement prepared by
theEuropean Union willprovide thebasisforareview oftheEU'strade policies andpractices inthe
Trade Policy Review Body on25and26November.1
Thereport confirms thecontinuation oftheEU'ssteady progress towards amoreliberal external
trade regime inthelasttwoyears, under thecombined effects ofimplementation ofWTO tariff
commitments, theelimination ofquotas andvoluntary export restraints, newmultilateral commitments
oninformation technology products andtelecommunications services, andthecompletion ofthesingle
market. Thereport notes thatinanincreasing number ofareas suchastheliberalization ofservices
1Thisreview oftheEuropean Union 'strade policies andpractices isan"interim review", asagreed in1996
bytheTrade Policy Review Body. Ittherefore focuses principally onacomprehensive survey ofdevelopments
intrade policy, andintheeconomy oftheEU,since theprevious review heldin1995; thecoverage ofsectors
ismore selective thaninprevious review, concentrating onsignificant development inmajor areas. However,
while "interim", thereview isofimportance since itisthefirstofpolicy developments intheEUsince thecreation
oftheWTO.
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Page2/3
trade ortheharmonization ofstandards, thesingle market process andmultilateral liberalization have
beenmutually supportive, resulting inimproved market access fornon-EU suppliers.
Border protection hasdeclined inthelasttwoyears. Average most-favoured-nation tariffs
onindustrial products havefallen from6percentin1995to4.9percentin1997, andshould beunder
3percentattheturnofthecentury. Inagriculture, average rates, although much higher, were
nonetheless reduced from 25percentin1995 to20.8percentin1997. Fears thatthegradual
dismantling ofvoluntary export restraints andquantitative restrictions would translate inincreased anti-
dumping activity hasnotmaterialized asthenumber ofinitiations andmeasures inforce stabilized
between 1992and1996. Nevertheless, import protection andtheuseofcontingency measures remain
significant inparticular industrial sectors suchastextiles, automobile andconsumer electronics, where
hightariffsmayco-existwithintenseanti-dumpingactivity.Agriculturecontinuestoenjoytheprotection
ofhightariffs, withpeaks incereals, meat, dairy andpoultry, sugar andtobacco.
Thereport notes that,asprotection attheborder isgradually reduced, internal obstacles to
competitiveness andefficient allocation ofresources become more apparent. Government assistance
totheEUeconomy remains sizable byinternational standards, intheorder ofECU 100billion ayear
forState aidprovided bytheMember States, inaddition toother investment incentives andgrants
providedbylocalauthorities,andCommunitysubsidyprogrammes.Theopeningofpublicprocurement,
which accounts for12percentoftheUnion 'sGDP, hassofarhadlimited effect onexternal suppliers.
Despite some recent liberalization, insufficient competition incertain service markets maintains
highcosts forconsumers anduserindustries. Asstressed inthereport, theremoval ofrestrictions
totrade inservices, bothwithin thesingle market andexternally, hasbecome akeypolicy objective
oftheCommunity. Thisisreflected inrecent progress made intheareas offinancial services,
telecommunications andairtransport. Thespeed ofreform isconditioned bothbyinternal political
factors andbythespeed ofexternal negotiations. However, theEU'sapproach hasbeensteady and
determined.
Thereport highlights that,sofar,manufacturing hasbenefited mostfromcontinued reductions
intariff andnontariff barriers. WTO implementation intextiles andclothing, theintroduction ofthe
InformationTechnologyAgreementandsinglemarketmeasuresreinforcethistrend.Conversely,sectors
remaining sheltered from world competition bycombinations ofhightariffs, State aidandmarket
fragmentation experience structural weaknesses anddifficulties toadapt tonewmarket trends,
technologies anddemand. Concerns havealsoarisen within theEUabout theneedtoescape from
excessive specialization inmedium-technology products.
Inagriculture, favourable market trends haveaided implementation ofCommon Agricultural
Policy reform andfulfilment ofWTO commitments. Average tariffs havefallen buthighout-of-quota
duties continue toprotect sensitive products. While financial transfers toagriculture havecontinued
togrow, theynowtakeasmaller share oftheEUbudget; increasingly, assistance istaking theform
ofdirect payments. Future enlargement tocentral andeastern European countries, covered bythe
recent Commission 'sAgenda 2000 proposals, seems likely toimpose further limitations onfarm
subsidies. Future plans emphasize theadoption ofmore market-oriented measures withlessreliance
onpricesupport mechanisms andexport subsidies, reduction inintervention andafurther shifttoward
direct income support.
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TheWTO report emphasizes thatthereview istaking place inaperiod ofpolicy development
intheEuropean Union. Major changes areinpreparation, suchasthemovement towards economic
andmonetary union, further enlargement, andadditional reforms inkeysectors suchasservices and
agriculture. These factors, together withtheperspective ofcontinuing negotiations under the"built-in
agenda" oftheWTO, arelikely tomaintain pressure forfurther economic andtrade reforms.
Theintroduction oftheeurowillbeamajor factor governing theEU'sexternal trading relations
inthecoming years. Elimination ofexchange riskswithin theeurozoneshould havedirect benefits
onintra-EUtrade;however,bothintra-andextra-Communitytradeshouldbenefitfromlowertransaction
costs, greater transparency ofthesingle market, andfurther predictability andsecurity oftrade.
Theenlargement oftheUnion andtheexpansion oftheEU'spreferential network offree-trade
agreements, which hascontinued inthelasttwoyears, isbound togivesome concern tom.f.n. trading
partners inrelation topotential trade diversion. There arealsoconcerns about thesystemic effect on
themultilateral trading system. Thereport notes thattheEU'sCouncil ofMinisters hascalled fora
more careful consideration oftheWTO conformity ofpreferential agreements aswellasaclarification
ofWTO rules onregional trading agreements.
Thereport concludes thattheEU'strade policies andpractices havegenerally evolved ina
favourable direction. Multilateral rules anddisciplines constitute animportant andgrowing point of
reference intheelaboration oftheEU'spolicies. Observance ofWTO rules anddisciplines andthe
continuation oftheSingle Market process aregenerally increasing theopenness andpredictability of
theEUmarket. This, saysthereport, should benefit boththeEUanditstrading partners.
Note toEditors
TheWTO Secretariat 'sreport, together withareport prepared bytheEuropean Union will
bediscussed bytheWTO Trade Policy Review Body (TPRB) on25and26November 1997. TheWTO 's
TPRB conducts acollective evaluation ofthefullrange oftrade policies andpractices ofeachWTO
member atregular periodic intervals andmonitors significant trends anddevelopments which mayhave
animpact ontheglobal trading system. Thetworeports, together withareport oftheTPRB 'sdiscussion
andoftheChairman 'ssumming up,willbepublished induecourse asthecomplete Trade Policy Review
oftheEuropean Union andwillbeavailable fromtheWTO Secretariat, Centre William Rappard, 154
ruedeLausanne, 1211 Geneva 21.
ThereportscoverthedevelopmentofallaspectsoftheEuropeanUnion'stradepolicies,including
domestic lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector.
Since theWTO cameintoforce, the"newareas" ofservices tradeandtrade-related aspects ofintellectual
property rights arealsocovered. Attached arethesummary observations from theSecretariat and
government reports. Fullreports willbeavailable forjournalists fromtheWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 &1996),
Cameroon (1995), Canada (1990, 1992, 1994&1996), Chile (1991 &1997), Colombia (1990 &1996),
Costa Rica(1995), Côted'Ivoire (1995), Cyprus (1997), theCzech Republic (1996), theDominican
Republic (1996), Egypt (1992), ElSalvador (1996), theEuropean Communities (1991, 1993&1995),
Fiji(1997), Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991), Iceland (1994),
India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992 &1995), Kenya (1993),
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Korea, Rep.of(1992 &1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993 &
1997), Morocco (1989 &1996), NewZealand (1990 &1996), Nigeria (1991), Norway (1991 &1996),
Pakistan (1995), Paraguay (1997), Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992),
Senegal (1994), Singapore (1992 &1996), Slovak Republic (1995), South Africa (1993), SriLanka
(1995), Sweden (1990 &1994), Switzerland (1991 &1996), Thailand (1991 &1995), Tunisia (1994),
Turkey (1994), theUnited States (1989, 1992, 1994 &1996), Uganda (1995), Uruguay (1992),
Venezuela (1996), Zambia (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
EUROPEAN UNION
Report bytheSecretariat -Summary Observations
Introduction
Thisreview oftheEuropean Union 'strade policies andpractices isan"interim" review, as
agreed in1996bytheTrade Policy Review Body. Ittherefore focuses principally onacomprehensive
survey ofdevelopments intradepolicy, andintheeconomy oftheEU,since theprevious review held
in1995; thecoverage ofsectors ismoreselective thaninprevious reviews, concentrating onsignificant
developments inmajor areas.
Thereview takesplace inatransitional period ofpolicy development intheUnion itself. Major
changes areinpreparation, suchasfurther enlargement, themovement towards economic andmonetary
union, andreforms inkeysectors suchasagriculture andservices. Suchdevelopments arelikely to
haveastrong, although notyetquantifiable, impact ontheUnion andthemultilateral system; the
report istherefore anattempt tovisualize thedirections ofpolicy movements andassess theirpotential
effects onthesystem.
TheEconomic Environment
Economic growth intheEUhas,onaverage, beenrelatively modest (around 2percent)since
the1995Trade Policy Review, reflecting theimpact ofthesharp slowdown ofmid-1995 tomid-1996.
Confidence hasstrengthened sincethesecond halfof1996, leading toprojections ofrealGDPgrowth
ofaround 2.5percentfor1997. While some Member States (Ireland andFinland) continue toshow
higher-than-averagegrowthperformance,cyclicaldevelopmentsamongthelargereconomieshavebecome
more synchronized. Average growth intheUnion asawhole hasbeentooweak toallow significant
improvement inunemployment, although performance ofMember States inthisregard varies widely.
Fiscal andmonetary policies haveshown greater convergence, resulting inmore stable exchange rates
within theEuropean Monetary System.
Exports, stimulated bybuoyant world markets, have beenthemain contributing factor to
economic growth. While exports ofmanufactures havebeenincreasingly oriented towards fast-growing
marketsinAsiaandmodern-technologyproducts,concernsremainabouttherelativelyhighconcentration
ofEUtradeinmedium-technology products andtowards certain low-growth geographical areas. Trade
inservices, oneoftheEU'sstrongholds, hascontinued tobenefit from international liberalization,
technical progress andstrong demand fortechnology-based services.
Preparations fortheintroduction ofasingle currency (theeuro) haveintensified, driving the
conduct ofmacroeconomic policies inmost Member States. Theplanned introduction oftheeuro
represents anewstepineconomic integration within theEUandisalsolikely tobeamajor factor
governing theEU'sexternal trading relations inthecoming years. Elimination ofexchange raterisks
within theeurozoneshould havedirect benefits onintra-EU trade; however, bothintra- andextra-
Communitytradeshouldbenefitfromlowertransactionscosts,greatertransparencyofthesinglemarket,
andfurther predictability andsecurity oftrade.
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Recent Developments inTrade Policies
Atthetimeoftheprevious review, thecompletion ofthesingle market programme andthe
conclusion oftheUruguay Round dominated theEU'sagenda. Inthelasttwoyears, priorities have
shifted towards preparations fortheintroduction oftheeuroandthereform ofCommunity institutions
inview offuture enlargement. AttheEuropean Council inAmsterdam, theHeads ofState or
Government agreed, interalia,onarevision ofArticle 113oftheTreaty ofRome, opening thedoor
(subject tounanimous agreement bytheCouncil) topossible extension oftheCommission 'sexclusive
competence toconclude international agreements forcertain types ofservices andintellectual property.
Thebasic objectives oftheEU'strade policy havenotchanged substantially. Internally, the
Community hasfocused onconsolidation ofthesingle market rather thanondeveloping newpolicy
directions. Attention isbeing paidtothedepth andscope oftransposition ofEUlegislation intonational
laws, andtoenforcement inareas suchasgovernment procurement, environment andintellectual
property.
Externally, theEUismaintaining itsmulti-stranded approach, combining bilateral, regional
andmultilateral policies. Bilateral priorities include thestrengthening ofeconomic links with
neighbouring countries through theacceleration ofthepre-accession strategy forCentral andEastern
European countries (CEECs) andtheBaltic States, andtheconclusion ofanewgeneration ofassociation
agreements withMediterranean countries, progressively introducing reciprocal freetrade. TheCEEC
accession process hasbeentaken astepfurther byarecent Commission proposal ("Agenda 2000")
toadmit tomembership Cyprus, theCzech Republic, Estonia, Hungary, Poland andSlovenia. "Agenda
2000" alsoprovides afirstevaluation oftheconsequences ofenlargement fortheEUandtheselected
countries, andcallsforfurther reforms invarious areas ofpolicies suchasagriculture, structural funds
andtheCommunity budget.
Other initiatives included thecompletion ofthemid-term review ofthefourth (andlast)Lomé
Convention andtheinitiation ofdiscussion todetermine thestructure ofpost-Lomé arrangements;
newframeworks forrelations withNorth America, MERCOSUR orAsia; negotiations ontrade
liberalization withMexico, Chile andSouth Africa; theconclusion ofnewPartnership andCooperation
agreements withformer Soviet Union (FSU) countries; andprogress towards theremoval ofnon-tariff
barriers inbilateral trade withtheUnited States, inthecontext oftheNewTransatlantic Dialogue.
These measures, strengthening European integration bothintheSingle Market andthrough
thenetwork ofregional andbilateral agreements, arelikely tohaveincreasingly significant effects on
outsiders, andonthemultilateral system asawhole, notonlythrough suchsteps astheextension of
duty-free access onanFTAbasis, andaccelerated quota liberalization fortextiles andclothing products
from preferred sources, butalsothrough theadoption oftheEUtrading regime byitspartners and
theirparticipation innewsystems of"diagonal" cumulation oforigin. Already, intheperiod 1985-95,
theshare ofintra-EU trade inmanufactures rosefrom 54to68percentoftotalexports from the
Community astheSingle Market advanced; inthesame period, intra-EU flows rosefrom 41to59
percentoftotalCommunity FDI.
Atthesame time, however, theUnion engaged firmly intheprocess ofUruguay Round
implementation andpromoted theuseofWTO dispute settlement procedures. Italsomade animportant
contribution tothesuccess oftheSingapore Ministerial Conference andwasattheforefront ofrecent
GATS andITAnegotiations. Multilateralism isthusfirmly embedded intheEU'spolitical agenda.
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Trade Policy byInstruments
Byandlarge, thelasttwoyears haveconfirmed theEU'ssteady progress towards amoreliberal
external trade regime, under thecombined effects ofWTO implementation inareas suchastariff
reductions orthegradual elimination ofnon-tariff barriers, enlarged m.f.n. commitments through the
ITAandthenewagreement ontelecommunications services, andthecompletion oftheSingle Market.
Inanincreasingnumberoftopics,suchastheharmonizationofstandardsortheliberalizationofservices,
thesingle market process andmultilateral liberalization havebeenmutually supportive, resulting in
market access improvement fornon-EU suppliers. Ontheother hand, inareas suchasgovernment
procurement, thelackofimplementation ofsingle market directives mayhaveadverse consequences
onexternal suppliers.
Border measures
While many oftheEU'strading partners benefit from free-trade areaorother preferential
treatment, most imports stillenter atm.f.n. rates. TheUnited States andJapan arestillthemost
important trading partners, supplying some 20and9percentofexternal imports in1996.
In1997, thesimple average m.f.n. tariff across allproducts stood at10percent. Reflecting
Uruguay Round commitments, average m.f.n. tariffs onindustrial products havecontinued todecline,
from6percentin1995 to4.9percentin1997. Some highduties persist inthetextiles, automobile
andconsumer electronics sectors. Further tariff reductions, aspartoftheUruguay Round andthe
ITA, willresult inanaverage m.f.n. industrial tariff ofunder 3percentbytheturnofthecentury.
Asaresult oftheWTO Agreement, allEUagricultural tariffs arebound, against two-thirds
previously. Asinmany WTO Members, reflecting thetariffication ofprevious variable levies and
import restrictions under theAgreement onAgriculture, average ratesarehigher thanforindustrial
products; thesimple average m.f.n. tariff foragricultural products wasestimated at20.8percent
in1997, down from 25percentin1995. Thetariff profile shows peaks forcereals, meatandmeat
products, dairy andpoultry, sugar andtobacco products.
Under theSingle Market, access conditions haveimproved foravariety of"sensitive" products.
Trade restrictions previously maintained byMember States havebeenabolished or,inafewcases
(thebanana regime, the"carconsensus" withJapan andcertain restrictions onproducts fromnon-WTO
Members) converted intoCommunity-wide quotas. Most ofthese restrictions arescheduled tolapse
attheturnofthecentury, orshortly thereafter, asaresult ofWTO Agreements orunder bilateral
arrangements. Progress hasbeenrecorded inthelasttwoyears withtheremoval ofmostgrey-area
measures (except oncars)andtheintegration intotheGATT ofasecond listoftextiles andclothing
items.
Fears thatthegradual dismantling ofvoluntary export restraints (VERs) would translate into
asharp increase inanti-dumping measures havenotbeenconfirmed. Theuseofcontingency measures
stabilized between 1992 andmid-1996. However, theEUremains thesecond most important user
ofanti-dumping procedures. While thelasttwoyears haveseenanincrease inthenumber ofmeasures
inforce, affecting inparticular textile products, thenumber ofinitiations hasdiminished. Other trade-
defence instruments available under WTO provisions, e.g.,safeguards andcountervailing actions, are
being usedonlymarginally.
In1996, theEUintroduced a"Market Access Strategy" aimed atachieving better access to
third-country markets through amore focused, systematic andcoordinated useofavailable trade
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instruments. According totheCommission, thestrategy isnotintended tocreate newtradeinstruments
orjeopardize theUnion 'sobligations under theWTO. Todate, themain concrete stephasbeenthe
creation ofadatabase compiling information onexisting "obstacles" outside theEU.TheCommission
intends toprepare reports identifying priority countries andlisting theirtrade barriers.
Recent changes inrulesoforigin arerelated totheharmonization oftheserulesamong European
countries andthecreation ofasingle territory forthedetermination oforigin between theEEA, EFTA
andCEEC countries (inall,28countries). Thenewsystem islikely toencourage thefurther
development ofoutward processing andassembly operations within theenlarged region, inparticular
inthetextiles, clothing andautomobile industries.
Efforts towards theharmonization ofstandards andtechnical requirements intheSingle Market,
which have intensified inthelasttwoyears, havebeen mirrored attheinternational level bythe
conclusion ofmutual recognition agreements (MRAs) withtheUnited States, Australia, Canada and
NewZealand.
Measures affecting production andtrade
Astraditional protection attheborder isgradually reduced, internal obstacles totrade, resource
allocationandcompetitivenessbecomemoreapparent.GovernmentassistancetoEUeconomiesremains
sizable, intheorder ofECU 100billion ayearforStateaidprovided bytheMember States, inaddition
tootherforms ofinvestment incentives andgrants provided bylocalauthorities, andCommunity subsidy
programmes. Theopening ofpublic procurement (which accounts for12percentoftheUnion 'sGDP),
while benefiting from animproved EUandinternational framework, hassofarhadlimited effect;
anddespite gradual liberalization, thesurvival ofmonopolistic structures incertain service markets
maintainshighcostsforuserindustriesandconsumers.Manyoftheseissuesarebeingaddressedthrough
anactive competition policy.
TheCommission continues toreview andmonitor StateaidintheCommunity. Thecomplex
anddifferentiated system reflects thelarge number andwide variety ofaidprogrammes available.
TheEUauthorities havebeenseeking tonarrow thescope ofsector-specific exemptions inareas such
assteel, textiles andservices. There wasanincrease inState aidgranted in1992-94 over1990-92;
more recent statistics arenotyetavailable.
TheWTO Government Procurement Agreement (GPA) became partoftheEUregime onits
entry intoforce. TheUnion hasundertaken toaligncertain directives totheGPAtoensure coherence
andsimplify implementation. While thesingle market legislative framework inthefieldofgovernment
procurement isnowinplace, notalldirectives haveyetbeenfullytransposed intonational lawsand
theireconomic impact has,todate, beenrelatively minor.
Thelasttwoyears haveseenrapid development inthenumber ofcompetition policy cases,
reflecting theriseofcross-border mergers, acquisitions andstrategic alliances bothwithin theEUand
attheinternational level. These posenewchallenges forcompetition authorities, andtheUnion has
therefore beenseeking toadapt itsownframework andtodevelop international cooperation. Bilateral
negotiations between theEUandtheUnited States todeepen the1991 Agreement onCooperation in
Competition Policy ledin1997toanagreement strengthening theapplication ofthe"positive comity"
principle inenforcement oftheirrespective competition laws. TheEUhascontinued toargue infavour
ofthedevelopmentofacompetitionpolicyframeworkatthemultilaterallevel,andisstronglysupporting
theWTO work programme clarifying theconnection between trade andcompetition policy.
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Trade Policy bySectors
Theperiod hasbeenoneofimplementation ofWTO Agreements andofdeepening oftheSingle
Market, notofmajor regulatory change. Generally, internal andexternal processes arecontributing
tocreating amore open, competitive marketplace. However, theSingle Market isyetfarfrombeing
completed, albeit more advanced inindustry thaninservices.
Inagriculture, favourable market prices havefacilitated theimplementation ofCAP reform
andfulfilmentofWTOcommitments,graduallyincreasingthesector'sexposuretocompetition.Average
tariffs havefallen, buthighout-of-quota duties continue toprotect sensitive areas. Aspects oftariff
quota administration, theuseofspecial safeguards andexport subsidies havebeenofconcern toother
WTO Members. Asaresult ofreduced intervention prices andinternational pricetrends, mainly linked
tochanges inthecereals andsheepmeat sectors, in1996 there wasan8.7percentreduction inthe
producer subsidy equivalent (PSE) ofsupport andaone-third reduction intheconsumer subsidy
equivalent (CSE). Financial transfers toagriculture havecontinued togrow buttakeasmaller share
oftheEUbudget. Changes havealsotaken place inthemanner inwhich assistance isprovided, with
amovement towards direct payments. Farm incomes havecontinued torise,inparticular forproducers
ofcereals andmeatother thanbeef, helped byhighworld prices andthechanging patterns offarm
support.
Budgetary considerations, inparticular theimpact offuture enlargement toCentral andEastern
European countries, seem likely toimpose further constraints onfarmsubsidies. Measures toaddress
these concerns andprepare forthesecond phase ofnegotiations under theWTO Agreement on
Agriculture arecontained intheCommission 's"Agenda 2000" proposals, which emphasize theadoption
ofmoremarket-oriented measures, withlessreliance onpricesupport mechanisms andexport subsidies,
reduction inintervention, andafurther shifttodirect income support.
Ingeneral,manufacturinghasbenefitedfromcontinuedreductionsoftariffandnon-tariffbarriers.
WTO implementation intextiles andclothing, theintroduction oftheITA,andsingle market measures,
arereinforcing thistrendandincreasing theexposure ofprotected industries tointernational competition.
Nevertheless,structuralweaknessesremaininkeysectorssuchasautomobilesorcertainsegments
oftheelectronicsindustry.Surveyspointtoinsufficientproductandgeographicalspecialization,declines
inmarket shares andacertain lossoftechnological advantages. Inthese industries, thepersistence
ofacombination ofhightariffs, Stateaidandmarket fragmentation mayhaveretarded adaptation to
newmarket trends, demands andtechnologies.
Conscious oftheneedtoreduce costs ininput services, theEUhasmade theremoval of
restrictions totradeinservices amajor policy objective. Theapproach hasbeensteady anddetermined,
butthespeed ofthereform hasnecessarily beenconditioned bypolitical factors. Inthelasttwoyears
theCommunity hascontinued toprogress towards liberalization insome keyservices areas, forexample
through preparations forfullliberalization oftheinternal market inairtransport and,particularly,
telecommunications. Thisinternal impetus hasbeenbacked byaconsistent approach tomultilateral
negotiations; ingeneral, theEUhasbeenadriving force behind recent GATS negotiations, making
substantial offers orcommitments anddevoting considerable energy totheencouragement ofother
participants todolikewise.
TheCommunity anditsMember States havealsoundertaken toopenupcertain "core" public
services suchaselectricity, gasandpostal services, although insome instances withlongtransition
periods. Insuchareas, theneedisoften seentomaintain abalance between market opening andthe
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provision ofassured public services. Thus, intelecommunications liberalization, theEUauthorities
havepaidparticular attention tothedefinition ofauniversal service atanaffordable price.
Outlook
Import protection, other forms ofassistance andtheuseofcontingency measures remain of
importance incertain sectors. However, asaresult ofthecombined effects ofthesingle market process
andtheimplementation oftheWTO Agreements, theEU'stradepolicies andpractices havegenerally
evolved inafavourable direction. Thenearelimination ofVERs andreduced reliance ontariff and
non-tariff measures, combined withtheobservance ofWTO rulesanddisciplines, areincreasing the
openness andpredictability ofthemarket. These tendencies provide encouraging evidence thatthe
multilateral framework ofrulesanddisciplines constitutes animportant -andgrowing- pointofreference
intheelaboration oftheUnion 'spolicies.
TheSingle Market process hasstimulated internal competition, sometimes withbenefits for
third-countrysuppliers.Theintroductionofthesinglecurrency,budgetarylimits,theprospectoffurther
enlargement, andinternational negotiations ornewagreements inkeyeconomic sectors suchasfinancial
services arelikely tomaintain pressures forfurther economic andtrade reforms.
Theenlargement oftheUnion andtheexpansion oftheEU'spreferential network offree-trade
agreements arebound togivesome concern tom.f.n. trading partners inrelation topotential trade
diversion. There arealsoconcerns about thesystemic effects intheWTO. Atthesame time, itis
clearthattheEUisreassessing indepth boththepattern ofitsfree-trade arearelationships andtheir
relationships withtheWTO Agreements andwithm.f.n. partners. Indeed, themultiplicity offorms
ofeconomic cooperation andlevels oftrade preference hasledtheCouncil ofMinisters tocallfor
more careful consideration oftheWTO conformity ofpreferential agreements aswellasclarification
ofWTO rules onregional trading agreements.
Overall, theinterface between thesingle market process andexisting ornewWTO commitments
appear tobeworking together tothebenefit ofboththeUnion anditstrading partners, andthiscan
beusefully carried forward. Atthesame time, there arealsolessons tobedrawn forthedevelopment
ofthemultilateral system fromtheprocess ofEuropean integration andtheevolution ofitsdisciplines
andstructures.
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TRADE POLICY REVIEW BODY
EUROPEAN UNION
REPORT BYTHE GOVERNMENT
Introduction
Thisisthefirstinterim review oftheEU’stradepolicy under therevised TPRM arrangements.
Since thelastTrade Policy Review oftheEU,there hasbeenagood dealofdebate, within
theEU,onquestions related toeconomic growth, jobcreation andinternational competitiveness. This
debate, related totheglobalisation oftheworld economy, hasremained highonthepublic agenda,
ascompetition inaglobal economy hasbeenviewed fromdifferent perspectives bydifferent sections
ofsociety.
Thisisanimportant back-drop fortheWTO ’strade policy review process. Likeallareas
ofeconomic policy, trade policy isameans totheendofproviding fortheeconomic prosperity of
individuals andsociety, andproviding theeconomic underpinning forwhatever levelofsocial provision
societies consider tobeappropriate. Public authorities havesought tohighlight thebenefits ofgreater
world-wide integration bypointing outthat,already, extra-EU exports directly account for9%ofEU
GDP and10%ofemployment (roughly theGDP oftheNetherlands, Austria, Finland andPortugal).
FortheEU,andforEuropean Governments, thisdebate hasbeenanimportant feature ofboth
internal andexternal economic policy overthepasttwoyears. Atthesame time, theEUhasbeen
engaged indealing withtheconsequences ofitsmost recent enlargement, infurther preparation for
future enlargement andtheintroduction oftheEuro, andintheconsolidation ofmany aspects ofits
external economic relations. Ineachoftheseareasofactivity, ourapproach hasreflected afundamental
commitment toanopenanddynamic market economy supporting appropriate levels ofsocial provision
andprotection, aswellassustainable development.
Theopenmultilateral trading system principally embodied intheWTO Agreement isacentral
anchor fortheexternal dimensions ofthiswider agenda. TheWTO ’ssystem ofrules, market access
commitments, enforcement through thedispute settlement system anditscommitment tofuture
negotiations andliberalisation through thebuilt-in agenda provides anexternal framework foragreement
andimplementation oftheright economic policies inasimilar wayasourowninternal market
programme provides asystem ofrules, ameans ofenforcement andofcourse acontinuous framework
forthefurther development oftheEU'sinternal market. TheEUremains committed tothefundamental
WTO objective ofprogressive multilateral liberalisation based onthenon-discrimination principle.
Keydevelopments intheEUsince thelastreview
Thiswider perspective hasbeenreflected inthefollowing keydevelopments overthepasttwo
years:-
(a) Theeconomic andtradeimpact ofenlargement oftheEUtoinclude Sweden, Finland
andAustria from 1January 1995. Thiswassignificant bothfortheEUinternally
-asthree substantial economies became fullyintegrated intothesingle market -as
wellaschanging theEU'sexternal profile intheWTO. Inparticular, thethree new
Member States adopted theCommunity 'scommon commercial tariff fromtheoutset,
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andtheArticle XXIV.6 compensation process provided byGATT 1994 wasrapidly
andsatisfactorily concluded infullcompliance withWTO rules.
(b) Attheendof1995, thefinalstageofthecustoms union withTurkey entered intoforce.
Thiswasasignificant achievement, bringing tofruition anambition shared bytheEU
andTurkeysincetheearly1960s.Anumberoflimitedtransitionalarrangementsremain
inforce forsome industrial products, andthepaceofagricultural liberalisation, while
slower, isnevertheless significant.
(c) More widely, theprocess ofworking together withpartners inCentral andEastern
Europe forwhom accession totheEUisashared vocation hasdeveloped overthe
pasttwoyearsintoawideranging andcomprehensive process ofco-operation, technical
assistance andrealeconomic integration, building ontheEurope Agreements theEU
haswitheachofthetencountries concerned.
Most recently, theCommission hasdelivered itsopinions ontheaccession applications from
thetenCentral andEastern European applicants. TheCommission recommended opening negotiations
withPoland, theCzech Republic, Hungary, Slovenia andEstonia. ForRomania, Slovakia, Latvia,
Lithuania andBulgaria, theCommission considers thatnegotiations should openassoonastheysatisfy
theconditions defined bytheCopenhagen European Council. TheEuropean Council atitsDecember
meeting inLuxembourg isexpected totakethenecessary decisions ontheoverall enlargement process.
TheCommission 'sopinions formed partofAgenda 2000 which setsouttheCommission ’s
views ofthedevelopment oftheEuropean Union bothforfurther enlargement andforthechallenges
fortheEUofthe21stcentury. These proposals, currently under consideration within theEU,are
intended toprovide foranew, outward looking andopenagenda based ontheaimsofenlargement
oftheEUandsubstantive policy reform inkeyareas. Thisincludes proposals forreform inagriculture,
regional development funding andbudgetary arrangements fortheperiod 2000-2006.
Within theEU,theprocess ofconsolidating theinterface between theinternal market andthe
WTO system hascontinued. In1995 and1996 theEUhasputinplace theCustoms 2000 project,
aimed atconsolidating theEU'sinstitutional machinery intheWorld Customs Organisation andthe
WTO, aswellasproviding appropriate institutional andtechnical underpinning forco-operation between
theCommission andtheadministrations inMember States inthefullrange ofcustoms procedures.
TheSingle Market
Attheendof1996, thefirstfullreview oftheoperation ofthesingle market wascompleted
bytheCommission. Theresult hasshown thatthesingle market programme hasbeeneffective in
providing fortheintegration ofEUeconomies. Atthesame time, ithasalsohighlighted anumber
ofareas where further work needs tobeundertaken toensure thatthefullbenefit ofthesingle market
programme isrealised. Thishasbeenreflected inaAction Planonthesingle market adopted bythe
Amsterdam European Council inJune1997. Encouragingly fortheTPRM process, thesingle market
reviewalsoshowedthatthirdcountrysuppliersofgoods,servicesandinvestmenttotheEUhadbenefited
from thesingle market programme justasmuch aspeople andcompanies within theEU.
Within theinternal market, there havealsobeenimportant developments ineconomic policy.
Theadoption in1994 oftheWhite Paper entitled "Growth, Competitiveness, andEmployment: the
challenges andways forward intothe21stcentury" hasformed thecentre piece forsubsequent policy
thinking onarange ofmicro-economic questions.
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Preparations havecontinued fortheintroduction oftheEuro asprovided intheMaastricht
Treaty. Thisprocess hasplayed animportant roleinshaping macro-economic policies within theEU,
andinhelping thewider process ofeconomic andeconomic policy convergence tocontinue toevolve.
TheEUandWTO
Within thecontext oftheWTO, while theSingapore Ministerial Conference, theconclusion
oftheITAandthebasic Telecommunications Agreement haveallprovided highlights overthepast
twoyears itisimportant toremember thattheprocess ofimplementing theUruguay Round results
hasalsobeenamajor feature ofEUactivity through thisperiod. Thetaskhasbeencomplicated by
thefactthatimplementation hascoincided withenlargement, andwiththeimplementation ofreforms
totheEU'sCommon Agricultural Policy.
Atthesame time, newmeasures totackle market access barriers inthirdcountries havebeen
putinplace asaresult oftheadoption ofanewmarket access strategy andarelated Regulation on
tradebarriers. Themarket access strategy adopted bytheEUCouncil ofMinisters isexplicitly intended
toprovide aclear andeffective articulation between theCommunity 'smultilateral agenda, andits
approach tobilateral market access questions withtrading partners within thewider WTO framework.
These initiatives needtobeseeninthecontext oftheEU'sfundamental commitment totheWTO 's
dispute settlement system andtheEU'sprofound disquiet attheuseofunilateral coercion tosettle trade
disputes.
TheEUhascontinued toplayanactive partinthework oftheWTO 'sDispute Settlement Body
(DSB). TheEUseesthesharp increase inthenumber ofcases brought intotheWTO system asasign
thatthedispute settlement system hasfulfilled Members ’expectations ofproviding aneffective means of
addressing tradedisputes. Thisisasignificant contribution totradeliberalisation andtheimplementation
ofUruguay Round commitments. Atthesametime, asignificant number ofcasesbrought tothedispute
settlement system havebeenamicably settled atsome stage during theprocedure. Thisisapositive
development, indicating thatmembers havenotlostsightoftheaimofthedispute settlement mechanism
offinding solutions mutually acceptable tothepartners andconsistent withthecovered agreements,
suggesting thattheimprovements tothedispute settlement system agreed attheendoftheUruguay
Roundhaveachievedtheirobjective.TheEUisfundamentallycommittedtounderpinningandenhancing
boththeeffectiveness andthecredibility ofthedispute settlement mechanism.
AllofthesedevelopmentsformedthebackgroundtotheCommunity'spreparationfortheWTO's
Ministerial Conference inSingapore inDecember 1996. Inaddition toitsapproach tomarket access
questions, theEUalsoadopted policies related totradeandenvironment, investment andcompetition,
andlaidtheinternalfoundationforthesuccessfulnegotiationatSingaporeoftheInformationTechnology
Agreement.
Oninvestment, theEUseesitasrightfortheWTO Group oninvestment towiden thecompass
ofanalysis already undertaken inthecontext oftheMultilateral Agreement onInvestment context in
recent years. Getting theconditions rightforforeign investment willbeanimportant foundation for
thefurther integration oftheworld economy andforthedevelopment oftrade inyears tocome.
Onenvironment, theEUhadambitious goals fortheWTO 'sCommittee onTrade and
Environment (CTE) intherun-up totheSingapore Conference. Unfortunately, thesortofwide-ranging
progress theEUhadhoped tomake onthisissuedidnotprove possible. Nevertheless, theEUremains
committed totaking thisissueforward intheWTO andother multilateral forainyears tocome. The
EUisconvinced thattheissue isacentral aspect ofthewider goalofSustainable Development.
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Oncompetition, theEUconsiders ittobeimportant todevelop thework oftheWTO group
onthisissue established asaresult oftheSingapore Conference, toconsider theextent towhich
conditions ofcompetition areabletounderpin effective market access inanincreasingly integrated
world economy.
Ontradeandlabour standards, theEUbelieves thateconomic growth anddevelopment fostered
byincreased trade liberalisation contribute tothepromotion ofcorelabour standards. TheEUrejects
theuseoflabour standards forprotectionist purposes, andagrees thatthecomparative advantage of
countries, particularly low-wage developing countries, mustinnowaybeputintoquestion. Asagreed
inSingapore, work topromote corelabour standards must continue.
TheITAagreed atSingapore andnowinforce wassupported bytheEUsince itsinception.
Thefirsttariffcutshavenowtaken place. Thanks totheITA,industry willbeassured ofunrestricted
access toITequipment -notonlyforthose whouseelectronic components tomanufacture butalso
those innonITindustries ortheservice sector which, toremain competitive, need access to
state-of-the-art informatics systems andsoftware andglobally competitive prices. TheITindustry
canaccelerate itsevolution towards global production onamore rational basis knowing thattariffs
(which actasinternal taxes) areeliminated. Looking beyond theresults already achieved, theEU
hopes thatother countries willjointheITA. TheEUisalsocontributing actively tothereview of
theAgreement ’sproduct coverage andotherissues, asforeseen intheAnnex totheSingapore declaration
onTrade inInformation Technology Products.
Theconclusion oftheWTO Agreement onBasic Telecommunications in1997 wasalsoan
important extension ofinternational rules andmarket opening fortheEU. TheEU’sownprocess
ofinternal liberalisation initstelecommunication market isfaradvanced andwillbecompleted on
1January 1998, thesamedateastheentry intoforce oftheWTO Agreement. Wewillbeinaposition
bytheagreed datetoconfirm that,asforeseen inthefourth protocol, allcommitments made are
implemented intothecorresponding internal regulations.
AtSingapore, theEUsupported efforts totakeforward theAction Planinrespect ofLLDCs
aimed atusing aHigh Level Meeting onLLDC assistance inGeneva attheendofOctober asafocus
forfurther efforts tobetter integrate theleastdeveloped countries intotheworld economy andinto
themultilateral trading system. TheEUhasdecided onways toimprove access toitsownmarkets
forLLDC products inthecontext ofitsGSPscheme, andtheEUisnowlooking ahead toconsider
howbesttodevelopitsmarketaccessarrangementswithACPpartnersafterthepresentLoméConvention
expires in2000. TheEUremains concerned thattheleastdeveloped countries havenotenjoyed the
fullbenefits oftheintroduction oftheWTO agreement andhavebecome increasingly marginalised
within theworld economy. Thisisasituation theEUwillcontinue toaddress asapriority infuture
work, ensuring thatmeasures tofurther theintegration ofleastdeveloped countries remains highon
theWTO ’sagenda. Better coordination oftraderelated technical assistance, andsimplified origin rules
areamong possible means toalleviate these problems, aswould beabroader commitment amongst
WTOmemberstoworktowardsreducingtariffsonLLDCproducts,comparabletothosegrantedalready
bytheEU.Asapractical measure toimprove market access forLLDC 's,theEUwillbeoffering
alevelaccess equivalent toLomé toallLLDC 'sby1January 1998.
TheEUhastaken aforward looking position inwork nowunder wayintheWTO infields
suchastrade facilitation, international standards andpractices under theTechnical Barriers toTrade
Agreement, rules oforigin andinthedeliberations oftheTRIPS council.
EUpolicy onregional preferential trade agreements hascontinued toevolve, following the
establishment oftheWTO 'sCommittee onRegional Trade Agreements atthebeginning of1996.
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Recognising theneed toensure thatregional policies arefully compatible with, andsupport the
multilateral trading system, theEUisafirmsupporter ofthework oftheCRTA, including itssystemic
workconsidering theinteraction ofregional preferential tradeagreements andtherights andobligations
contained within theWTO agreements, including thequestion whether these rights andobligations
should beclarified. Inrespect ofitsownpreferential agreements, theEUhasadopted clearguidelines
which givepriority toexisting commitments andmandates, onthebasisofwhich theEUwillcontinue
tonegotiate anumber offurther preferential agreements inthefuture. TheEU'sguidelines alsoensure
thatanynewproposals forpreferential agreements aremeasured against alistofindicative criteria,
allowing them tobesubject tocareful, consistent consideration onacase-by-case basis, inthelight
ofmultilateral obligations.
TheEUhasalsoputagooddealofeffort intothedevelopment ofimportant regional dialogues
ontrade policy issues withtheUnited States andCanada, aswellaswithAsian, Mediterranean and
Latin American partners. Relations withtheUSandCanada havebeenmarked bythelaunch in1995
oftheNew Transatlantic Agenda (NTA) withtheUS,andthesignature oftheEU-Canada Joint
Declaration andAction PlaninDecember 1996. These arrangements haveprovided thefoundation
foranewperiod ofcloser co-operation between theEUandtheUSandCanada, enabling foreign policy,
global andother economic concerns tobeaddressed inaneffective manner.
SofarastheUSisconcerned, theNTA reaffirms theshared commitment oftheEUandthe
UStostrengthening themultilateral trading system, andhasbeeninstrumental inlaying thefoundation
fortheITAandtheWTO Basic Telecommunications Agreement. Without prejudice tothiscommitment,
intherelated NewTransatlantic Market-place process, theEUandUSareworking toidentify and
reduce barriers totrade andinvestment, often inresponse toinitiatives from business. Therecent
Agreement onMutual Recognition ofConformity Assessment isagoodexample ofthiseffort. Similarly
withCanada,theActionPlanhasborneearlyfruitwithagreementsonMutualRecognitionofConformity
Assessment, Customs Co-operation andMutual Assistance. Talks have alsobeen completed on
agreements onco-operation incompetition matters andveterinary equivalence.
WithAsian partners, thegrowing importance fortheEUandtheentire Asian region hasbeen
demonstrated bythecreation in1996oftheAsia-Europe Meeting (ASEM) asapermanent forum for
discussion onpolitical andeconomic issues. Inthetradefield, ASEM aimstoimprove economic and
investment opportunities forbothpartners through mechanisms suchasarecently adopted Investment
Promotion Action Plan, aTrade Facilitation Action Plan, andaninitiative oncustoms cooperation.
EU-ASEAN linkshavealsobeenstrengthened through Ministerial agreement in1997onaprogramme
tocreate a"new dynamic" inEU-ASEAN relations inseveral fields including theeconomic.
Theimportance ofLatin America fortheEUisalsogrowing. Trade between thetworegions
hassignificantly increased during thelastfewyears. AEU-MERCOSUR framework co-operation
agreement wasconcluded inDecember 1995. Asimilar agreement wasconcluded withChile in
June1996, while aneconomic andco-operation agreement between theEUandMexico wasinitialled
inJuly1997. These agreements provide forenhanced cooperation across awiderange ofpolitical,
economic andcommercial activities. During theperiod under review, anewgeneration ofbilateral
Euro-Mediterranean agreements were alsoconcluded between theCommunity andanumber ofits
partners intheMediterranean region. These agreements provide fortrade liberalisation within a
comprehensive framework ofpolitical andeconomic cooperation, andrepresent thefirststeptowards
theachievement ofafuture Euro-Mediterranean freetrade zone.
TheEUremains committed toimproving theGovernment Procurement Agreement andto
extending bothitsmembership andcoverage. Furthermore theEUhasplayed anactive partinthe
work ofagroup tostudy transparency ingovernment procurement procedures, aswellasinwork on
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procurement ofservices. Looking tothefuture, theEUseesgovernment procurement asasignificant
areaforfurther liberalisation within thewider global economy, building onthework nowunder way.
Future policy directions
Looking ahead, akeypartoftheEU'sapproach toexternal commercial policy remains its
commitment tofurther multilateral liberalisation focused ontheWTO system. Thisis-andwillcontinue
tobe-reflected inseveral ways:
(a) theEUiscommitted totheframework forfurther liberalisation already established
asaresult ofdecisions taken atthetimetheWTO wassetup(theso-called built-in
agenda) inrespect oftheadditional decisions taken atSingapore toinclude aspects of
investment, competition andgovernment procurement intheWTO ’sworkprogramme,
theEUisclearly committed tothetime-tables agreed foraddressing these issues, and
looks forward totaking anactive andconstructive partinthatprocess. Equally, the
EUintends tocontribute positively andactively tofurther initiatives toreview thescope
andcoverage oftheITA;
(b) tofurther theagenda oftrade facilitation (including standards andregulatory issues,
origin questions, customs procedures, andelectronic commerce);
(c) tocontinue toplayafullroleintheaccession ofnewmembers totheWTO infull
compliancewithWTOrulesandonthebasisofmeaningfulmarketaccesscommitments;
(d) andtoensure thattraditional market access issues remain intheforefront oftheWTO 's
future work.
FortheEU,ashared political commitment tothesuccessful conclusion ofthese negotiations
andfullimplementation ofthenegotiated commitments isthemainobjective. TheWTO system and
themultilateral trading system more widely willonlycontinue todevelop ifitenjoys thewholehearted
support ofWTO members bothintheirdealings witheachother andintheirexplanation ofthereal,
longer-term benefits oftrade liberalisation totheir respective domestic political constituencies.
Governments should notglossovertherealchallenges anddifficulties which canaccompany economic
change, butatthesame timetheyshould notallow debate ontrade questions tobeconducted ina
fragmented manner oronasectoral basisnotproviding aclearviewoftheglobal andmutual benefits
thatflowfrom comprehensive andbroad liberalisation.
Theaccessions process, thebuilt-in agenda andtheWTO ’swork programme provide together
anunparalleled opportunity forfurther liberalization andwider participation byallcountries inthe
global economy. TheEUseesaclearneedtotackle thistaskinacomprehensive, global way. Although
muchhasbeenachievedsincetheestablishmentoftheWTOthroughtheITAandthetelecommunications
negotiations, aswellascurrent work onfinancial services andother issues, there isultimately alimit
totheprogress which canbemade onanadhocorsectoral basis. Difficult market access and
rule-making challenges arebestaddressed globally, enabling allparticipants totakethewidest possible
viewoftheireconomic andother interest. Seizing thisopportunity willbethefirsttaskfortheWTO 's
members inthenewmillennium.
END