REPORT FROM THE COMMISSION TO THE EUROPEAN COUNCIL Trade and Investment Barriers Report 2011  Engaging our strategic economic partners on improved market access: Priorities for action on breaking down barriers to trade    SEC(2011) 298 final
Date: 2011-03-10
Institutions: European Commission
Subjects: common commercial policy, customs duties, foreign trade, intellectual property, international market, investment, market access

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EUROPEAN COMMISSION 

Brussels, 10.3.2011 
COM(2011) 114 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN COUNCIL 

Trade and Investment Barriers Report 2011 

Engaging our strategic economic partners on improved market access: 
Priorities for action on breaking down barriers to trade 

SEC(2011) 298 final 

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REPORT FROM THE COMMISSION TO THE EUROPEAN COUNCIL 

Trade and Investment Barriers Report 2011 

Engaging our strategic economic partners on improved market access: 
Priorities for action on breaking down barriers to trade 

1. 

INTRODUCTION 

As the world's largest trading bloc and as the most important source and destination of foreign 
direct investment, the EU has an inherent interest in ensuring an open and fair global trading 
system. This interest can only grow in the years to come – by 2015, 90% of world growth will 
be generated outside Europe. The European economy needs to seize the opportunity of higher 
levels of growth abroad, in particular in Asia.  

A key message of the new EU trade strategy1 is that in parallel to the negotiating agenda, our 
renewed trade policy must take a more assertive approach, not least to ensure that European 
companies are not deprived of legitimate market access opportunities and that our rights are 
properly enforced to ensure a level–playing field. The Commission will be focused and tough 
in  pursuing  this  agenda.  The  Commission  is  also  determined  to  continue  the  fight  against 
protectionism. Indeed, it is precisely because the EU believes in the benefits of open markets 
at home and abroad that the EU needs to engage its partners on matching its efforts, in a spirit 
of reciprocity and mutual benefit2.  

Helping European companies gain access to third country markets has been and continues to 
be an essential element of the EU's trade policy, but the EU needs to step up its efforts. It is 
well  established  that  today's  main  trade  policy  challenge  does  not  primarily  lay  in  cutting 
tariffs  for  goods,  but  in  overcoming  regulatory  barriers,  gaining  better  market  access  for 
services and investment, opening public procurement markets, better protecting and enforcing 
Intellectual Property Rights (IPR), and tackling unjustified barriers hampering the sustainable 
supply  of  raw  materials.  More  generally  it  needs  to  be  ensured  that  trade  contributes  to 
sustainable  development,  taking  into  account  the  social  impacts  of  barriers  to  trade.  Studies 
show that the EU's Gross Domestic Product (GDP) could be boosted by more than half of one 
per cent if we complete our bilateral and multilateral negotiating agenda.3 Yet, this figure can 
be doubled if the EU makes real progress on non-tariff barriers (NTBs) and regulatory issues 
with its major trade partners such as the US and China.4 Trade policy can and must make a 
major contribution to jobs and growth.  

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4 

Trade, Growth and World Affairs, COM (2010) 612, 9.11.2010. 
European Council Conclusions, 16 September 2010.  
Commission  Staff  Working  document  "Trade  as  a  Driver  of  Prosperity"  accompanying  the 
Commission's Communication on "Trade, Growth and World Affairs";  
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146940.pdf 
Commission  Staff  Working  document  "Trade  as  a  Driver  of  Prosperity"  see  footnote  3,  pg.  9. 
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146940.pdf 

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The Market Access Strategy5 forms a key element of our enforcement activities in ensuring 
that trade agreements are effectively translated into real trade benefits. Particular attention is 
being  paid  to  preventive  actions,  including  through  the  use  of  early  warning  notification 
mechanisms as provided in WTO agreements on Technical Barriers to Trade and Sanitary and 
Phytosanitary Measures. The Commission is determined to continue developing its new and 
collaborative  way  of  working  with  Member  States  and  business  to  tackle  barriers  in  third 
country  markets,  and  to  make  barrier  removal  a corner-stone  of  our  relationships  with  third 
countries,  including  at  the  highest  level.  In  the  Commission's  view,  market  access  issues 
should  form  an  important  part  of  the  ongoing  discussions  in  the  European  Council  on 
enhancing our strategic economic partnerships by setting priorities, streamlining the different 
instruments  and  coordinating  our  messages  to  more  effectively  promote  the  EU's  interests 
abroad. It is also useful to reflect on priorities just as the European External Action Service 
becomes operational.  

This  is  the  first  annual  report  to  the  European  Council  on  trade  and  investment  barriers  in 
third countries, as first announced in the Europe 2020 Strategy6. It provides an opportunity to 
focus  attention  on  the  common  efforts  needed  on  a  selected  set  of  market  access  barriers 
including  'beyond  the  borders'  measures  and  industrial  policy  practices7.  Indeed,  there  has 
been a significant reawakening of interest in industrial policy  in EU  major trading partners. 
This sometimes includes practices such as active promotion of 'national champions' that might 
be detrimental to EU interests.  

The barriers selected are those of major economic and/or systemic importance for European 
business in the markets of certain strategic partners. This includes also export restrictions for 
raw materials which are strictly speaking not "market access" barriers, but which are equally 
harmful for European companies, in particular European downstream producers incorporating 
the raw materials in the finished products they export. This Report will help focus discussions 
in  the  European  Council  on  shared  market  access  priorities,  to  reap  the  full  potential  of  the 
EU's combined strength, and bring direct benefits in terms of growth and jobs in the European 
Union.  

2. 

SIGNIFICANT  BARRIERS  IN  OUR  RELATIONS  WITH  STRATEGIC 
PARTNERS 

This  report  focuses  on  barriers  that  are  of  major  economic  and/or  systemic  importance  for 
European  business  in  the  markets  of  certain  of  our  strategic  partners  -  China,  India,  Japan, 
Brazil/Argentina (the latter grouping due to the Mercosur dimension), Russia and the US. In 
2009,  trade  with  these  partners  represented  45%  of  our  trade  in  goods  and  commercial 
services  (with  the  US  accounting  for  19%  and  China  10%)  and  41%  of  our  foreign  direct 
investment (FDI) flows8 (with the US alone accounting for 35%). As the EU has currently no 
bilateral  FTA  negotiations  with  four  out  of  the  six  partners,  a  reinforced  common  approach 
towards these countries is all the more important.  

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COM (2007) 803, 11.12.200.  
COM(2010) 2020, 03.03.2010. 
For  more  information  on  industrial  policy  practices  see  "An  Integrated  Industrial  Policy  for  the 
Globalisation Era", COM(2010)614, 28.10.2010. 
In 2009 the European Union had a small disinvestment in Japan. 

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The  focus  of  the  report  on  these  strategic  partners  does  of  course  not  mean  that  the 
Commission is downgrading the importance of barriers in other important and often emerging 
markets, such as the ASEAN countries, the Gulf Cooperation Council countries, the Southern 
or  Eastern  Neighbourhood  countries,  or  other  strategic  partners  such  as  Mexico  and  South 
Africa  for  example.  The  annexed  Staff  Working  paper  complements  this  report  by  giving 
more  details  on  the  efforts  made  and  actions  foreseen  in  order  to  address  the  barriers 
identified in the wider context of 32 priority export markets.  

The  choice  of  specific  barriers  is  based  on  recent  joint  assessments  of  the  situation  in  the 
seven  countries  concerned,  such  as  the  key  barrier  exercise  carried  out  in  2009/2010  at  the 
request  of  the  Council9,  which  led  to  prioritising  205  barriers  for  32  markets,  and  the 
continuous  monitoring  of  protectionist  measures  introduced  following  the  recent  economic 
and financial crisis.10 

2.1. 

China 

China  is  the  EU’s  second  largest  trading  partner  while  the  EU  is  China’s  largest  trading 
partner. China is not only a source of low price consumer goods but also of key inputs for our 
manufacturing  industries.  Notwithstanding  our  important  bilateral  trade  deficit,  China  has 
become  the  fastest  growing  market  for  our  exports  of  goods  and  services  and  an  important 
destination for EU investment. The EU exported €82 billion worth of goods to China in 2009 
-  despite  the  crisis,  still  up  by  4%  compared  to  2008,  and  by  the  end  of  October  2010,  our 
exports were up by 38% on a year-on-year basis. Overall, exports from the EU to China have 
more  than  doubled  (121%)  between  2005  (first  11  months)  and  2010  (11  first  months). 
However,  this  level  of  EU  exports  still  remains  below  potential,  and  better  market  access 
would  allow  EU  exporters  and  investors  to  contribute  to,  and  take  full  part  in,  China's 
phenomenal economic growth. 

Ten  years  after  WTO  accession,  China  still  has  to  improve  its  record  on  implementation  of 
key  WTO  principles  of  non-discrimination,  transparency  and  national  treatment.  Important 
market  access  barriers  persist  in  standardisation  and  technical  regulations  as  well  as  in 
services,  investment  and  public  procurement.  Insufficient  enforcement  of  IPR  and 
burdensome certification procedures continue to raise enormous concerns. An underlying and 
growing  concern  is  that  China  appears  to  have  developed  interventionist  industrial  policy 
measures  aimed  at  import  substitution,  forced  transfer  of  technology  and  the  granting  of 
preferential access to raw materials to local producers. This includes industrial subsidies such 
as preferential loans from state banks, land grants, preferential prices for inputs (energy) and 
export credits. 

The following barriers have been identified as priority issues for EU operators:  

1)  In  the  area  of  raw  materials  China  is  now  systematically  resorting  to  market-restricting 
measures such as export duties and quotas. In 2009, these restrictions affected EU imports of 
raw materials from China worth around €1.2 bil lion, accounting for 6% of EU's total import 
of  these  goods.  59%  of  the  Chinese  import  affected  by  these  measures  was  industrial  raw 
materials. These trade barriers are particularly problematic in a global environment where no 
alternative  source  of  supply  or  no  substitute  raw  material  is  readily  available.  The  recent 

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Council Conclusions (GAERC) of 8 December 2008, Doc. 16198/08. 
See,  for  example,  DG  Trade,  "Seventh  Report  on  potentially  trade  restrictive  measures",  November 
2010; http://trade.ec.europa.eu/doclib/docs/2010/october/tradoc_146796.pdf 

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issues relating to trade in rare earths are a striking illustration of the problem. The barriers in 
place in China concerning rare earths affected 62% of the EU's total import of these types of 
rare  earths  in  2009.11  The  decrease  in  China's  rare  earth  export  quotas  has  resulted  in 
significant  market  shortages  and  steep  price  increases,  with  considerable  impact  on 
production costs of rare earth-based applications. Prices of rare earths have increased by up to 
500%  and  are  foreseen  to  increase  even  further  as  a  result  of  the  latest  reduction  in  export 
quotas.  EU  industry  uses  rare  earths  in  an  increasingly  wide  range  of  downstream 
applications,  the  main  uses  being  catalytic  converters  for  cars,  in  the  ICT  sector  (e.g.  in 
printed  circuit  boards,  for  optical  fibres  and  semi-conductors),  phosphorus-based  lamps, 
strong  permanent  magnets  (used  e.g.  in  electric  cars  or  wind  turbines),  high-tech  glass  and 
ceramics.  The  stakes  for  the  current  and  especially  future  development  of  the  European 
economy are therefore high.  

2) A key concern with regard to public procurement as well as intellectual property is the 
“indigenous  innovation”  policy  aimed  at  supporting  Chinese  firms  moving  up  the  value 
chain.  This  is  a  serious  concern  for  European  companies  wanting  to  export  from  the  EU  or 
already operating in China. In the past, this policy has severely hampered access to Chinese 
procurement 
to 
telecommunications with the requirement that foreign companies register their IPR in China. 
Draft  rules  also  require  applicants  to  disclose  commercially  sensitive  information  related  to 
innovation and IPR.  

innovative  sectors  from  green 

in  a  wide  number  of 

technology 

At  the  latest  High  Level  Economic  and  Trade  Dialogue,  however,  the  Chinese  government 
has given reassurances that it will not treat products and services differently based on where 
patents are registered, or adopt or maintain measures that make the origin of development or 
ownership of intellectual property a condition for government procurement preferences. The 
Commission welcomed this announcement but will closely monitor the implementation of the 
measures,  including  at  provincial  level,  in  order  to  establish  a  level-playing  field  between 
domestic, foreign-invested companies established in China, and foreign companies. 

More generally, the Chinese procurement framework remains incomplete and not transparent. 
Major reforms are needed to ensure compliance with international standards and a predictable 
environment for bidders. China's accession to the GPA is instrumental to reach these goals.  

In the broader area  of IPR,  access to  the Chinese IPR enforcement system remains  difficult 
for foreign businesses, in particular those operating in creative and innovative sectors. They 
are disadvantaged  with  stricter  formality  requirements  applying  to  them.  In  particular,  the 
legalisation and notarisation requirements for Power of Attorney and evidence coming from 
abroad  are  burdensome  and  costly,  and  they  prevent  foreign  operators  from  defending  their 
rights  before  the  courts  and  administrative  authorities  in  an  effective  manner.  Moreover, 
interim injunctions are difficult to obtain in practice and the damages awarded by the courts 
often remain too low. 

3)  China  is  increasingly  imposing  requirements  for  compliance  with  specific  Chinese 
standards  and  related  burdensome  third-party  testing  and  certification  procedures. 
Such  requirements  often  collide  with  international  standards  and  practices,  putting  foreign 
businesses at a disadvantage. A significant example is the information and communication 
technology  (ICT)  sector,  where  the  overall  complexity  and  lack  of  transparency  of  China's 

11 

Defining rare earths as rare earth metals, scandium and yttrium (HS 280530), cerium compounds (HS 
284610), and compounds of rare-earth metals (HS 284690). 

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regulatory  and  conformity  assessment  practices  contribute  to  an  increasingly  unpredictable 
business  environment  and  serious  market  access  problems  for  foreign  and  foreign-invested 
companies.  

4) Regarding investment, current flows show a vast untapped potential. Although European 
companies  invested  more  than  €5  billion  in  China  in  2009,  this  is  less  than  3%  of  total 
investment  outflow.  The  current  investment  climate  in  China  is  hampered  by  a  lack  of 
transparency  and  predictability.  Furthermore,  Chinese  regulations  in  particular  in  the  power 
sector (on qualification requirement, restricted access to concession projects and assembling 
requirements)  prevent  EU  energy  companies  from  full  access  to  the  Chinese  market, 
especially in the renewable energy sector.  

In  addition,  as  evidenced  by  the  so-called  "investment  catalogue",  a  number  of  important 
sectors  remain  closed  to  foreign  investment  in  China,  or  access  is  limited  through  joint 
ventures,  equity  caps,  limits  on  the  number  of  establishments  etc.  Through  the  combined 
impact of different measures, China uses its investment regime as a tool to steer its economic 
development, in particular by favouring local companies through technology and "know-how" 
transfer.  This  is  a  serious  concern  for  European  companies  wishing  to  invest  in  China.  The 
upcoming revision of the investment catalogue provides a good opportunity to deliver a clear 
message  to  the  Chinese  authorities  on  the  need  for  a  truly  open  and  non-discriminatory 
investment climate in China. 

2.2. 

India 

India is an important trade partner for the EU and a growing economic power. With a growth 
rate of between 8 and 10% per year it is one of the fastest growing economies in the world. 
Per  capita  income  more  than  doubled  during  the  period  1990-2005.  In  parallel,  in  just  four 
years, EU-India trade has increased by 31% to over €53 billion in 2009 and EU investment to 
India has more than quadrupled since 2003 to €3.1 billion in 2009. 

However,  India's  trade  regime  and  regulatory  environment  still  remain  comparatively 
restrictive.12  In  addition  to  high  tariff  barriers,  India  also  imposes  a  number  of  non-tariff 
barriers  in  the  form  of  quantitative  restrictions,  import  licensing,  burdensome  mandatory 
testing (such as for tyres for example) and certification for a large number of products as well 
as  complicated  and  lengthy  customs  procedures.  With  regard  to  intellectual  property,  some 
improvement in the IPR enforcement infrastructure has been reported, however there are still 
significant concerns about India's  response to counterfeiting and  piracy. Furthermore, in the 
area of procurement, the Indian legislative framework remains incomplete. Major reforms are 
needed to ensure compliance with international standards and a predictable environment for 
bidders.  

The  current  trade  performance  between  the  EU  and  India  falls  therefore  far  short  of  its 
potential. The comprehensive and ambitious free trade agreement with India currently under 
negotiation could constitute one of the most significant deals concluded by the EU. A trade 
deal of this magnitude would generate sizeable benefits to both economies which conservative 
estimates put in the range of €9 - €19 billion.  

12 

In 2008 the World Bank ranked India 120 (out of 178) in terms of "ease of doing business".  

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The following barriers are significant trade irritants with India which need to be resolved:  

1)  Burdensome  licensing  requirements  related  to  new  security  provisions  have  been 
proposed which would affect, if fully implemented, the  access of European operators to the 
commercial  procurement  of  telecommunications.  The  provisions  stipulate  prior  security 
clearance and technology transfer requirements, as well as an obligation to substitute foreign 
engineers with Indian ones. Such requirements are unprecedented internationally, and would 
damage investment in India. In 2009 the EU exported telecommunications equipment worth 
€1 billion to India.  

2) Another topical trade issue concerns India's recent measures restricting exports of cotton. 
From  2004  to  2009  the  EU's  imports  of  cotton  have  increased  by  17%.  Several  cotton 
products  are  facing  export  restrictions  in  India.13 Although EU total imports of  these cotton 
products  have  experienced  a  decline  of  48%  over  the  five  year  period,  recent  measures  on 
these goods are important since 23% of EU imports of these types of cotton products came 
from India in 2009. Furthermore, as the second largest cotton producer in the world (20% of 
global production) and the only global net exporter of cotton, India's policy has a significant 
impact  on  global  cotton  supply  and  hence  on  prices,  aggravating  the  global  upward  price 
spiral.  European  industry  is  therefore  facing  very  high  prices  and  a  shortage  in  supply,  as 
India is the EU's main import source for cotton products. 

3)  Furthermore,  India’s  investment  policy  continues  to  hinder  foreign  investments.  Many 
important  economic  sectors  such  as  multi-brand  retail  remain  closed  to  foreign  investment 
and  a  series  of  measures  has  been  adopted  to  control  foreign  capital  flows  and  ensure 
maximum benefit for local companies through technology and know-how transfers.  

4)  Finally,  Sanitary  and  Phytosanitary  (SPS)  import  requirements  going  beyond 
international  standards  without  scientific  justification  hinder  various  EU  exports,  mainly 
poultry, pig meat, vegetables, fruits and timber.  

2.3. 

Japan 

As  a  highly  developed  economy  and  major  global  trader  and  investor,  Japan  is  already  an 
important  partner  for  the  EU  while  still  offering  further  high  potential  trade  opportunities. 
With  a  share  of  almost  4%  of  EU  exports  of goods and services in 2009, Japan  is  the EU's 
seventh largest export market. However, over the period 2005-2009, EU exports in goods to 
Japan declined by almost 6% on average by year. The fact that the Japanese trade surplus has 
remained high is partly a reflection of continuing market access problems for foreign firms in 
Japan.  

While tariffs in Japan are generally low, regulatory obstacles to trade in goods and services, as 
well as barriers to investment and public procurement, remain high and are perceived by EU 
industry  as  one  of  the  main  reasons  why  the  Japanese  market  is  often  considered  as  more 
difficult than other markets.14 However, 2010 has brought about a renewed commitment for 
closer economic ties between the EU and Japan in the context of discussions in the so-called 
High Level Group established by the EU-Japan Summit of April 2010. The EU has made it 

13 
14 

HS codes 5201, 5202, 5203, 5205, 5206 and 5207. 
Assessment  of  barriers  to  trade  and  investment  between  the  EU  and  Japan,  report  from  Copenhagen 
Economics, November 2010”; http://trade.ec.europa.eu/doclib/docs/2010/february/tradoc_145772.pdf 

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clear  that  Japan’s  capacity  to  demonstrate  that  regulatory  obstacles  can  be  removed  is  the 
single most important condition for closer economic integration between the EU and Japan.  

The  following  three  important  barriers  are  therefore  good  test-cases  for  Japan’s  ambition  to 
improve market access to the mutual benefit of both the EU and Japan.  

1)  A  first  example  relates  to  the  major  barriers  EU  business  is  facing  on  the  Japanese 
procurement  market  -  despite  the  fact  that  Japan  is  a  party  to  the  WTO  Government 
Procurement Agreement (GPA). Japan has committed to open to GPA partners (and therefore 
EU  businesses)  the  public  procurement  market  worth  some  €22  billion.  In  2007  this 
represented  only  4%  of  Japan's  total  public  procurement  markets  and  0.5%  of  its  GDP.  In 
contrast, Japanese companies had access to EU public procurement markets that were worth 
€312 billion (or 2.5% of the EU GDP). Underlying th is problem are, inter alia, restrictions to 
access  contracts  awarded  by  railway  and  urban  transport  operators,  excessive  thresholds  for 
public contracts for construction works, and lack of exhaustive coverage of local contracting 
authorities.  

2) Second, the introduction of new medical devices in the Japanese market remains difficult 
as  Japan's  regulatory  framework  provides  insufficient  recognition  of  international  standards 
and  lengthy  approval  procedures.  Only  half  of  the  medical  devices  used  in  the  EU  and  US 
markets are available in Japan. 

3) Regarding the financial services sector, the European insurance industry has continuously 
voiced major concerns over the preferential treatment of Japan Post by the Japanese regulator. 
The  new  legislation  prepared  by  the  government  would  discriminate  even  further  against 
foreign insurance companies instead of levelling the playing field vis-à-vis private Japanese 
and foreign operators. 

2.4.  Mercosur: Brazil and Argentina 

Brazil  is  the  EU's  10th  trading  partner  (2009  figures)  with  exports  in  goods  from  the  EU 
amounting  to  more  than  €21  billion,  while  the  EU  is  Brazil's  biggest  trading  partner, 
accounting for almost a quarter of its total trade. Brazil is also the single biggest exporter of 
agricultural products to the EU, accounting for one in eight of total EU agricultural imports. 
The EU is the biggest foreign investor in Brazil. However, the Brazilian market is relatively 
highly  protected  with  an  applied  customs  tariff  averaging  12%  and  significant  non-tariff 
barriers hampering the activities of traders and investors.  

Argentina  is  also  an  important  trading  partner  for  the  EU,  and  the  EU  is  also  the  biggest 
foreign  investor  in  Argentina,  accounting  for  about  half  of  the  FDI  in  Argentina.  As 
highlighted by various monitoring reports produced by international organisations as well as 
by the Commission15 , Argentina's trade policy responses throughout the economic crisis have 
been particularly problematic with a significant number of new protectionist measures being 
introduced since 2008. 

As part of Mercosur, Brazil and Argentina are currently negotiating an association agreement 
with the EU which will include a free trade agreement.  

15 

See,  for  example,  DG  Trade,  "Seventh  Report  on  potentially  trade  restrictive  measures",  November 
2010; http://trade.ec.europa.eu/doclib/docs/2010/october/tradoc_146796.pdf. 

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Against this background, the following important trade barriers need to be addressed in order 
to facilitate market access to both countries:  

1) In Brazil, fair access of foreign companies to the growing procurement market, which is 
already limited, is becoming even more difficult – a recent law introduced a 25% preference 
margin for local goods and services and restricted to national suppliers the procurement of 
goods  and  services  considered  of  national  strategic  interest.  This  has  already  been  affecting 
European  suppliers  in  the  ICT  field.  The  size  (in  2007  it  was  estimated  to  be  worth  around 
€133  billion)  and  high  potential  of  the  Brazi lian  public  procurement  market  makes  this  a 
significant  barrier  –  even  more  so  as  the  rationale  of  the  measure  seems  to  be  as  part  of  a 
wider industrial policy. 

2) Regarding both Brazil and Argentina, there are restrictions in maritime transportation 
that  are  of  direct  concern  to  EU  business.  Cargo  sharing  agreements  between  Brazil  and 
Argentina  limit  the  opportunities  for  EU  shipping  companies  in  engaging  in  international 
trade  between  the  two  countries.  The  size  and  growth  of  intra  Mercosur  and  EU-Mercosur 
trade flows, and the likely growth in those flows as a consequence of a possible FTA between 
Mercosur and the EU, makes this issue particularly relevant for EU companies. 

3) Brazil and Argentina are also hampering trade through different measures restricting the 
export  of  raw  materials.  Products  affected  include  agricultural  products  and  also  raw 
hides, skins and "wet-blue". As regards agricultural products, for some products such as soya 
beans,  export  taxes  in  Argentina  are  as  high  as  35%.  Coupled  with  burdensome  export 
procedures like "export registries" e.g. for beef and grains, these measures have a considerable 
negative  effect  on  European  downstream  producers  and,  ultimately,  consumers.  Raw  hides, 
skins  and  wet  blue,  for  which  Brazil  and  Argentina  are  very  important  global  producers, 
constitute  a  case  in  point.  The  EU  leather  industry  is  heavily  dependent  on  supplies  from 
Brazil  and  Argentina;  in  2009  the  EU's  imports  from  Brazil  of  bovine  raw  hides,  skins  and 
wet-blue  on  which  there  were  restrictions  were  worth  €87  million  (12%  of  the  EU's  total 
imports)  and  for  Argentina  the  import  on  those  facing  restrictions  was  worth  €81.2  million 
(10%  of  EU's  total  import).  The  use  of  export  taxes  on  hides  and  skins  leads  to  important 
competitive  disadvantages  for  the  EU  leather  industry  as  these  duties  account  for  a  very 
significant  part  of  leather  production  costs.  It  should  be  noted  that  in  parallel  to  the 
introduction  of  export  restrictions,  Brazil  and  Argentina  are  developing  their  industries  of 
finished leather goods. Thanks to easy access to the cheap raw materials not available to their 
foreign competitors, these industries have by now become very competitive internationally.  

4)  Finally,  a  significant  trade  restriction  that  Argentina  has  imposed  as  a  response  to  the 
economic  and  financial  crisis  is  the  extension  of  its  system  of  non-automatic  licences  to  a 
wide range of products. Initially focusing on textiles, footwear and toys, the system is being 
applied more and more to other products such as tyres, iron pipes, machinery and mechanical 
appliances  (e.g.  elevators,  harvesting  machinery),  base  metal  and  articles  of  base  metal  and 
auto  parts.  Estimates  are  of  potential  losses  of  at  least  €  45  millions  to  European  exporters. 
Furthermore, there are indications that the scope of the non-automatic licensing system could 
be  extended  even  further.  A  salient  feature  of  these  measures  are  very  often  "voluntary" 
restraints  of  importers  to  level  their  imports  with  domestic  production.  Following  the  same 
logic,  the  Argentinean  government  also  took  measures  to  restrict  imports  of  certain  food 
products, i.a. by informally encouraging supermarkets not to sell such products any more and 
by delaying the issuance of so-called "certificates of free circulation". 

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2.5. 

Russia 

Russia is one of the EU's key trading partners and bilateral trade flows saw steep growth rates 
until  mid  2008  when  Russia  adopted  unilateral  trade  restrictive  measures  in  response  to  the 
economic and financial crisis to protect their domestic industry. These protectionist measures 
have seriously affected EU/Russia commercial relations. In 2009, EU goods exports to Russia 
accounted  for  €65.6  billion  (down  from  €89.1  bill
ion  in  2007)  while  imports  from  Russia 
amounted  to  €115  billion  (€144.5  bill
ion  in  2007).  For  commercial  services,  EU  exports 
amounted  to  €18.3  billion  (2009)  and  EU  FD I  outflows  amounted  to  €26.3  billion  (2008). 
State-owned enterprises continue to play an important role in the Russian economy. 

The  negative  impact  on  EU  exports  of  a  number  of  recent  protectionist  policies  pursued  by 
Russia  has  been  perpetuated  through  the  consolidation  of  the  temporary  Russian  tariff 
increases in the context of the Common External Tariff of Customs Union with Kazakhstan 
and Belarus which entered into force on 1 January 2010.16 Russia has recently accelerated its 
WTO accession process and intends to complete it during this year which would result in such 
increased duties falling back to the lower levels negotiated with WTO members.  

In recent years, Russia has implemented high export duties on a number of commodities that 
are  important  for  EU  importers,  such  as  wood,  ferrous  and  non-ferrous  metal  scraps.  Given 
the weight of the Russian supplies, such policies have a significant impact on EU industries. 
EU imports of those industrial raw materials from Russia that are facing barriers were worth 
almost €3 billion in 2009. In the framework of  Russia's WTO accession, which would ensure 
more  stable  conditions  for  business  in  and  with  Russia,  a  bilateral  agreement  was  recently 
reached  to  resolve  outstanding  issues  such  as  export  duties  on  wood  and  discriminatory 
railway fees.  

The following commercial barriers stand out as being of crucial importance for EU business 
interests: 

1) One key concern for EU exporters, in particular small enterprises, continues to be  costly 
and burdensome customs procedures, including arbitrary valuation and resort to minimum 
prices. The implementation of  the  Customs Union between  Russia, Kazakhstan  and  Belarus 
has exacerbated the problems in this area.  

2) IPR enforcement  concerns  also  remain high on the agenda  with  Russia.  There is  still a 
high level of piracy in Russia. The sale and use of counterfeited goods are widespread both on 
street  markets  and  in  mainstream  retail.  Furthermore,  systematic  infringements  of  patents, 
commercial secrets and know-how in innovative sectors jeopardise the EU's competitiveness. 
The  establishment  of  the  Customs  Union  between  Russia,  Kazakhstan  and  Belarus  on  1 
January 2010 brought a considerable risk of further weakening the enforcement of protection 
of  trademarks.  The  risk  is  linked  to  the  weak  IPR  regime  in  Kazakhstan,  whose  porous 
borders allow for the entry of counterfeited goods and for illegitimate parallel imports from 
Asian countries, China notably.  

16 

The Commission estimates that total costs in increased duties, introduced by Russia in the course of the 
economic  crisis,  and  consolidated  in  the  Common  External  Tariff  of  the  Customs  Union  between 
Russia, Kazakhstan and Belarus, are estimated for 540 million per year (some 860 million per year in 
the  Customs  Union  as  a  whole).  See  also:  DG  Trade,  Fifth  report  on  potentially  trade  restrictive 
measures,  November  2009;  DG  Trade,  Sixth  report  on  potentially  trade  restrictive  measures,  May 
2010.  

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3)  Russia's  investment  policy,  which  aims  at  protecting  and  fostering  domestic  industries, 
remains  another  source  of  significant  concern.  Trade  related  investment  measures  include 
requirements  of  local  content,  domestic  sales,  export  performance  and  technology  transfer. 
The  recent  “localisation  initiative”,  which  is  intended  to  provide  incentives  for  foreign 
companies  to  set  up  production  in  Russia  in  a  number  of  sectors,  including  automobiles, 
electronics  and  pharmaceuticals,  is  the  latest  illustration  of  this  policy.  Furthermore,  the 
Russian  law  on  foreign  investment  in  strategic  sectors  imposes  very  low  thresholds  for  ex-
ante approval of foreign energy investments in Russia, making EU investment in the upstream 
Russian energy market very cumbersome. 

4) Last, but not least, there are issues related to SPS that continue to significantly hinder EU 
exports  to  Russia.  Most  of  Russia's  SPS  measures  are  not  consistent  with  international 
standards  and  are  not  backed  by  any  scientific  justification.  The  economic  value  of  exports 
potentially affected by these barriers is significant: In 2009, exports of agricultural products to 
Russia constituted around 10% of total EU exports to Russia, amounting to almost €7 billion. 
Russia  is  thus  a  primary  export  market  for  agricultural  goods,  and  restrictions  in  this  area 
present a direct risk for companies operating in this sector. 

2.6. 

United States of America 

The US is by far the EU’s largest trade and investment partner. In 2009, exports of EU goods 
and  commercial  services  to  the  US  amounted  to  €322  billion  (20.6%  of  total  EU  exports), 
while imports of goods and services from the US amounted to € 281.9 billion (17.6% of total 
EU  imports).  The  EU  and  the  US  enjoy  the  most  integrated  economic  relationship  in  the 
world, illustrated by unrivalled levels of mutual investment stocks reaching €1,044.1 billion 
of US investment into the EU and €1,134 billion  of EU investment into the US in 2009, and 
flows reaching in 2009 €75.1 billion from the EU  to the US and €97.8 billion from the US to 
the EU.  

However,  the  enormous  potential  of  the  transatlantic  relationship  is  far  from  being  fully 
exploited. Given the low average tariffs (under 3%), the key to unlocking this potential lies in 
tackling  non-tariff  barriers.  The  biggest  obstacles  lie  in  the  divergence  of  standards  and 
regulations  across  the  Atlantic.  The  stakes  involved  are  high:  A  recent  study  suggests  that 
eliminating  only  half  of  existing  non-tariff  barriers  and  regulatory  divergences  between  the 
EU and the US would boost the EU's GDP by €122 billion a year. 17 

Against the background of such a large and deeply rooted relationship, the following barriers 
maintained by the US should be addressed as a matter of priority. 

1) It is striking to note the low level of openness of US government procurement markets to 
EU bidders. This results partly from the limited scope of the GPA commitments made by the 
US,  which  cover  only  3.2%  of  the  US  public  procurement  market  (worth  a  total  of  €34 
billion).  In  contrast,  the  EU  has  committed  to  open  around  15%  of  its  public  procurement 
markets  to  the  other  GPA  parties.  The  Buy  American  initiative  has  limited  even  more  the 
effective  access  to  US  public  procurement  markets  in  areas  not  covered  by  US  GPA 
commitments  through  new  discriminatory  provisions  included  in  the  American  Economic 
Recovery and Reinvestment Act and similar legislation. These provisions created additional 

17 

"Non-Tariff Measures in EU-US Trade and Investment – An Economic Analysis"; by Ecorys; released 
on the web on 16 December 2009,  
http://trade.ec.europa.eu/doclib/docs/2009/december/tradoc_145613.pdf 

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uncertainty for foreign operators in the US market and effectively excluded them from certain 
tenders, mainly in the construction sector and have had a very unfortunate knock on effect for 
similar measures in other countries. Another example of harming practices is the prohibition 
of U.S. government purchases from so-called inverted companies, which are originally U.S. 
companies that have changed tax jurisdiction and inverted to another country's tax system.  

2) Another horizontal barrier, potentially having a significant economic and practical impact 
on EU exports to the US are the '100% scanning' provisions. This US legislation that aims to 
enhance  security  by  countering  potential  terrorist  threats  to  the  international  maritime 
container trade system, foresees the 100% scanning (pre-scanning of containers before arrival 
in US ports) of all US-bound containers by 1 July 2012. Its repercussions are so far reaching 
that  it  would  act  as  a  serious  hindrance  to  EU-US  trade.  While  progress  has  recently  been 
achieved  in  the  context  of  discussions  in  the  Transatlantic  Economic  Council  towards  the 
recognition by the US of the concept of “authorized economic operator”, the EU will have to 
continue to monitor very closely further developments on this barrier. 

3. 

MOST  SIGNIFICANT  BARRIERS:  A  HORIZONTAL  ANALYSIS  ON 
COMMON TRENDS AND PRIORITIES 

The  barriers  listed  in  section  2  are  a  selection  of  the  most  important  problems  European 
companies face when they want to get access to the markets of our strategic partners. Certain 
types of barrier are recurrent. The following analysis of such common features may be useful 
for identifying best ways of addressing the issues, including possibilities for further leverage 
and for defining an enhanced (and more assertive) removal strategy for the future.  

3.1. 

Government Procurement 

Public  procurement  markets  remain  significantly  closed  to  foreign  participants  as  clearly 
illustrated  by  the  problems  highlighted  in  the  US,  China,  Japan  and  Brazil.  However,  these 
markets  are  far  from  being  negligible  from  a  commercial  point  of  view.  The  untapped 
potential  is  considerable.  In  2007,  public  procurement  spending  amounted  to  some  16%  of 
GDP in the EU, 11% in the US and 18% in Japan. For emerging and developing economies, 
data are scarce. In 2007, these government procurement markets were estimated to amount to 
around €212 billion in India and the Mercosur (Br azil and Argentina) put together. This may 
still  be  relatively  small  in  absolute  terms,  but  these  markets  are  expected  to  increase 
significantly and are likely to become important future business opportunities in sectors where 
EU industry is highly competitive.  

However,  public  procurement  is  arguably  the  largest  segment  of  trade  that  continues  to  be 
relatively  sheltered  from  international  commitments.  Only  14  countries  are  parties  to  the 
Government Procurement Agreement (GPA). Only the US and Japan among the six strategic 
partners identified in this report are currently GPA members while China is in the process of 
negotiating its accession. Moreover, even those countries that have signed up to the GPA have 
negotiated  important  limits  to  their  market  opening  commitments  in  the  form  of  minimum 
thresholds or exclusions of sectors or entities (such as sub-federal). It is therefore no surprise 

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that  when  the  financial  and  economic  crisis  hit  in  2008/09,  a  proliferation  of  protectionist 
measures in the area of public procurement was noted.18  

Furthermore,  the  GPA  is  also  characterised  by  an  important  asymmetry  between  what  the 
different parties offer in terms of market access commitments, with the EU being much more 
open than the other parties. Clearly our trading partners have fallen short of reciprocity in this 
domain. For example, in 2007, the value of US procurement offered to foreign bidders in the 
GPA is just €34 billion and, for Japan it was €22 b
illion. This stands in sharp contrast to €312 
billion  worth  of  the  public  procurement  markets  that  the  EU  has  committed  to  open.  Thus, 
there is a strong case to push for more market access in public procurement, in particular with 
regard to our strategic partners that have not made reciprocal commitments. Efforts will need 
to be reinforced  in order to increase international commitments – be it through the ongoing 
GPA negotiations and the extension of its membership, through the FTAs negotiated by the 
EU or through targeted bilateral actions.  

However,  given  the  EU's  relative  openness  to  foreign  bidders,  its  leverage  in  trade 
negotiations  on  access  to  foreign  public  procurement  markets  is  reduced.19  In  order  to 
enhance leverage and secure improved symmetry in access to public procurement markets, the 
Commission  argued  in  its  recent  trade  policy  communication  and  in  the  Single  Market  Act 
that a specific initiative was necessary and intends to make a proposal in this respect this year. 
The  primary  purposes  of  the  new  legal  instrument  would  be  to  clarify  the  rules  governing 
access to the EU's public procurement market of third country goods, services and companies, 
thereby  ensuring  a  level  playing  field  on  the  EU's  public  procurement  market  and  to 
strengthen  the  position  of  the  EU  when  negotiating EU  companies'  access  to  public 
procurement markets of third countries, in order to obtain the (further) opening of our trading 
partners' public procurement markets. 

In addition, high level engagement will be necessary to ensure that European companies can 
access a legitimate share of foreign government procurement markets.  

3.2. 

Effective protection of Intellectual Property Rights (IPR)  

Difficulties  highlighted  above  with  regard  to  the  Chinese  and  Russian  markets  are 
symptomatic  of  the  major  problems  European  businesses  encounter  when  exporting  IP-
protected  goods  and  services.  In  the  globalised  economy,  the  comparative  advantage  of  the 
EU economy lies increasingly in high-value added and IP intensive goods and services. As a 
consequence, growth, jobs and innovation in the EU are severely hampered when our ideas, 
brands  and  products  are  pirated  and  counterfeited.  Lack  of  legal  protection  and  effective 
enforcement  of  IPR,  including  insufficient  protection  of  geographical  indications,  hinders 
European  business  from  reaping  the  benefits  of  important  export  opportunities.  To  give  a 
(narrow)  example,  in  2007  Protected  Designations  of  Origin  (PDOs)  and  Protected 
Geographical  Indications  (PGIs)  agricultural  products  had  an  estimated  wholesale  value  of 
€14.2 billion and it is estimated  that about 30% of the PDOs and PGIs is exported outside the 
EU. Enhancing IPR protection for our companies is therefore a crucial element to ensure the 
EU's ability to compete in the global economy.  

18 

19 

See  for  example  DG  Trade,  "Seventh  Report  on  potentially  trade  restrictive  measures",  November 
2010. 
See  Commission  Staff  Working  document  "Trade  as  a  Driver  of  Prosperity"  accompanying  the 
Commission's  Communication  on  "Trade,  Growth  and  World  Affairs";  pages  52ff.  and  "Towards  a. 
Single Market Act- for a highly competitive social market economy", see proposal n° 24, p.18 

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Some  progress  regarding  IPR  protection  has  been  made,  notably  through  the  enhanced 
implementation  of  the  Commission's  Enforcement  Strategy20.  Strong  IPR  provisions  have 
been  negotiated  in  bilateral  agreements.  The  Anti-Counterfeiting  Trade  Agreement  (ACTA) 
has been concluded with a number of like-minded countries21. Specific 'IPR dialogues' have 
been reinforced with certain key partners, such as China and Russia. The newly created China 
IPR  SME  Helpdesk  has  also  been  highly  effective  in  helping  European  SMEs  protect  and 
defend their IPR s in the country22, in addition to the "IPR2" project23, a partnership project 
between  the  EU  and  Chinese  authorities  which  aims  to  improve  the  effectiveness  of  IPR 
enforcement in China.  

The  recent  evaluation  of  the  Commission’s  Enforcement  Strategy24  concluded  that  this 
strategy is relevant and led to several successes, but requires some adjustments after having 
been in place for 6 years. Accordingly, the Commission is now reviewing its strategy, which 
should  be  upgraded  through  a  more  comprehensive  approach  (considering  in  particular  a 
broader range of stakeholders interests, such as development-related issues), on  the basis of 
the  above-mentioned  evaluation  and  of  other  sources  of  input,  including  broad  stakeholder 
consultations. 

3.3. 

Sustainable supply of raw materials  

The  growth  in  global  demand  and  the  upward  price  pressure  driven  by  the  rapid 
industrialisation  of  emerging  economies  has  triggered  concerns  with  regard  to  the  sound 
functioning  of  global  markets  of  raw  materials.25  Imports  of  raw  materials  represent 
approximately one third of EU imports. For the production and export of many high-tech and 
greener products, the EU industry is highly dependent on imports of specific raw materials.  

Trade restrictions on these goods can therefore potentially affect the competitiveness of  EU 
industry. Where the production of a given raw material is concentrated in a limited number of 
countries, export restrictions have a significant impact on the global market for the given raw 
material  and  can  constitute  a  very  serious  concern  for  EU  industry,26  Moreover,  the  use  of 
export restrictions by a producing country puts pressure on other exporters to follow suit so as 
to shield their domestic downstream industry unleashing a chain reaction that exacerbates the 
distortions  in  global  markets  and  pushes  up  prices.  In  addition,  as  domestic  prices  in  the 
countries applying restrictions will tend to fall this may discourage further investment in the 
production/extraction  and  therefore  further  endanger  the  long-term  supply  of  these  raw 
materials. 

20 
21 

22 
23 
24 

25 

26 

Strategy for the Enforcement of Intellectual Property Rights in Third Countries, 2004. 
Australia, Canada, Japan, Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, the United 
States and the EU.  
http://www.china-iprhelpdesk.eu 
http://www.ipr2.org 
Evaluation  of  the  IPR  Enforcement  Strategy  in  Third  Countries,  ADE,  November  2010  – 
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_147053.pdf 
For  more  detailed  information  see  Commission  Staff  Working  document  "Trade  as  a  Driver  of 
Prosperity" accompanying the Commission's Communication on "Trade, Growth and World Affairs"; 
page 65 and figure 15.  
The  supply  risk  is  due  to  the  fact  that  a  high  share  of  the  worldwide  production  (i.e.  the  processing 
capacity turning the raw materials into commercial industrial products) mainly comes from a single or a 
handful  of  countries:  this  is  the  case  with  regard  to  China  (antimony,  fluorspar,  gallium,  germanium, 
graphite,  indium,  magnesium,  rare  earths,  and  tungsten),  Russia  (PGM),  the  Democratic  Republic  of 
Congo  (cobalt,  tantalum)  and  Brazil  (niobium  and  tantalum).  This  production  concentration,  in  many 
cases, is compounded by low substitutability and low recycling rates. 

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Of the countries selected in this report, Argentina, Brazil, China, India and Russia currently 
impose  restrictions  on  export  of raw  materials.  These  measures  affected  EU  imports  of  raw 
materials worth almost €6 billion in 2009. A re cent study by the OECD showed that 65 WTO 
members  were  applying  export  duties  during  the  period  2003-200927.  Data  collected  by  the 
Commission28 showed that, as of September 2009, export restrictions faced by EU operators 
related  to  more  than  1200  tariff  lines.29  The  countries  imposing  the  largest  number  of 
measures  included  China,  Russia,  Argentina  and  Ukraine.  The  most  affected  sectors  were 
agricultural products, minerals, chemicals, raw hides and skins, wood and wood products, and 
metals.  

However, tackling this kind of trade distortive measures is particularly challenging given that 
they  are  not  fully  ruled  out  by  the  current  WTO  disciplines.  While  quantitative  restrictions 
(notably  export  quotas  and  export  licences)  are  subject  to  GATT  rules,  export  taxes  are 
generally not covered by multilateral disciplines30. In the framework of its general approach 
to  raw  materials,  the  Commission  has  therefore  developed  a  specific  trade  strategy  on  raw 
materials  based  on  three  pillars:  negotiations  on  relevant  disciplines  at  multilateral  and 
bilateral  level,  enforcement  of  existing  rights  by  challenging  illegitimate  export  restrictions, 
including  through  dispute  settlement  procedures  at  the  WTO  where  possible,  and  outreach 
activities to third countries, convincing  them  of  the  global  nature of the raw materials issue 
and of their own benefits from clear trade rules in this area. 

The  EU  has  implemented  this  strategy  including  by  conducting  a  number  of  trade 
negotiations,  by  launching  a  WTO  case  against  a  number  of  export  restriction  measures 
applied  by  China,  where  the  Commission  is  currently  examining  the  most  appropriate  next 
steps  that  could  be  taken  including  a  possible  follow-up  WTO  case,  and  by  fostering 
discussions  on  the  issue  in  bilateral  contacts  and  in  various  fora  such  as  the  OECD.  It  will 
continue to be necessary to raise the raw materials topic with relevant partners at the highest 
level and to use the channels of dispute settlement and FTA negotiations, where available, to 
their fullest potential. 

3.4. 

Services 

The  rapidly  expanding  services  sector  is  contributing  more  to  economic  growth  and  job 
creation  worldwide  than  any  other  sector.  In  the  EU,  the  services  sector  accounts  for  some 
three-quarters of GDP, over 70 % of EU jobs31 and for about 30% of EU exports. Yet, trade in 
services  only  accounts  for  20%  of  world  trade.  The  EU  is  the  world's  "market  leader"  in 
global  services  trade,  accounting  for  27%  of  global  exports  and  25%  of  global  imports  in 
2009. Services are thus an area of international trade where EU industry is highly competitive, 
but  where  trade  barriers  –  as  reflected  by  the  barriers  listed  in  section  2  for  Japan  and 

27 

28 

29 

30 

31 

This  represented  a  marked  increase  relative  to  the  period  1997-2002  when  39  WTO  Members  were 
using such instruments; see J. Kim, "Recent trends in export restrictions", OECD Trade Policy Working 
papers, 101, 2010. 
The database covers 19 countries including Algeria, Argentina, Brazil, China, Egypt, India, Indonesia, 
Kazakhstan, Russia, South Africa, Thailand and Ukraine.  
A measure is defined as a tariff line at HS4 level being subject to a quantitative restriction (export quota 
or export ban), an export tax, or a non-automatic export licensing process; see DG Trade, Raw materials 
2009 Annual Report, http://trade.ec.europa.eu/doclib/docs/2010/june/tradoc_146207.pdf 
Except  when  provisions  were  negotiated  in  WTO  accession  protocols  as  is  the  case  for  China  and 
Russia for a number of raw materials.  
According to the "Employment in Europe 2010" report (p. 165), in 2009 employment in services sectors 
in the EU equalled 70.4%. 

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Mercosur - continue to prevent it from reaping the full benefits of its strong competitiveness. 
Restrictions  in  trade  in  services  take  the  form  of  either  market-entry-barriers,  direct 
discrimination  between  domestic  and  foreign  service  providers  or  regulatory  barriers  that 
apply to all providers but create de facto additional hurdles for foreign providers.  

As  approximately  75%  of  trade  in  services  concerns  the  supply  of  infrastructure  services, 
increased  opening  of  trade  in  services  could  also  enhance  the  competitiveness  of 
manufacturing  firms,  leading  to  overall  welfare  gains.  Our  efforts  to  open  services  markets 
abroad need to be strengthened. The EU is currently negotiating the liberalisation of trade of 
services  within  the  multilateral  framework  of  the  GATS  and  through  bilateral  Free  Trade 
Agreements. The latter avenue has already delivered a significant liberalisation package in the 
context of the EU/Korea FTA. Building on this important precedent, the EU should prioritise 
services with a view to achieving highly ambitious results in future agreements, in the short 
term notably with India and Canada.  

3.5. 

Investment  

The  current  phase  of  globalisation  with  the  surge  of  integrated  supply  chains  has  seen  a 
dramatic  increase  in  Foreign  Direct  Investment  (FDI).  FDI  is  recognised  as  one  of  the  key 
factors  in  fostering  economic  growth,  also  for  developing  countries.  FDI  represents  an 
important  source  of  productivity  gains  and  plays  a  crucial  role  in  establishing  businesses 
abroad  and  building  the  global  supply  chains  as  part  of  the  modern  international  economy. 
Recent  research  has  also  shown  that  an  open  investment  climate  plays  an  important  role  in 
securing jobs in the EU.32 As the largest source of FDI in the global economy, the EU has a 
key interest in improving access to foreign markets and to free the full potential of the EU's 
internal strength in services and establishment.  

Barriers to foreign investment take the form of regulatory restrictions, classified by the OECD 
into  three  broad  categories:  (i)  restrictions  on  foreign  ownership  of  equity  capital;  (ii) 
mandatory screening and approval procedures increasing the cost of entry and (iii) operational 
restrictions like limits on foreign nationals working in affiliates, or nationality and residence 
requirements for the members of the board of directors, input restrictions and discriminatory 
government regulations, or restrictions on repatriation of profits. The bulk of restrictions are 
found in the services sectors, with, transport, telecoms, finance and electricity being some of 
the most restricted industries. Although FDI restrictiveness per country is not easy to measure, 
the high level of barriers to investment in India, China and Russia, as set out in section 2 does 
stand out.  

Given  the  benefits  of  foreign  investment,  the  EU  strives  to  create  an  attractive  and  stable 
climate for European investors abroad as well as to preserve and promote an open investment 
regime  at  home  in  a  spirit  of  reciprocity  and  mutual  benefit.  This  is  pursued  through  a 
combination  of  negotiations  and  dialogues  with  key  partners  like  the  US,  China  and  Russia 
and  the  active  participation  in  work  conducted  in  international  fora,  like  the  OECD, 
UNCTAD, and the G8/G20. With the entry into force of the Lisbon Treaty and the extension 
of  the  EU  competence  to  FDI,  investment  policy  is  being  more  comprehensively developed 
and managed at the European level, giving the EU a strengthened negotiating hand not only to 
contribute  to  the  progressive  abolition  of  restrictions  on  foreign  direct  investment  in  third 
countries but also to deliver better investment protection for all European businesses – and in 

32 

See  report  from  Copenhagen  Economics,  "Impacts  of  EU  outward  FDI",  20  May  2010, 
http://trade.ec.europa.eu/doclib/docs/2010/june/tradoc_146270.pdf. 

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the  meantime  safeguarding  the  protection  levels  negotiated  prior  to  the  Lisbon  Treaty  by 
Member  States  individually  with  third  countries.  The  Commission  has  already  published  a 
Communication33  on  an  international  investment  policy  that  increases  EU  competitiveness 
and thus contributes to the objectives of smart, sustainable and inclusive growth, as set out in 
the  Europe  2020  Strategy.  The  renewed  trade  strategy  also  commits  the  EU  to  address  the 
needs  of  EU  investors  outside  the  EU,  negotiating  comprehensive  market  access  and 
investment protection provisions with key trading partners, most urgently with India, Canada 
and Singapore, where trade negotiations are already well advanced. The EU will also consider 
stand-alone investment agreements with other major trade partners such as China and Russia. 

In  addition  to  this  very  substantial  and  evolving  agenda  of  negotiations,  the  existence  of 
specific  investment  barriers  will  require  engagement  on  a  case-by-case  basis  at  a  senior 
political level to ensure that European investors are not discriminated against.  

3.6. 

Regulatory issues – Technical regulations and standards (Technical Barriers to 
Trade and Sanitary and Phytosanitary issues)  

Technical regulations and standards related barriers figure prominently on the lists of market 
access concerns of many EU exporters. Examples mentioned in section 2 include problems in 
the  information  technology  sector  in  China  and  India  or  medical  devices  in  Japan.  Such 
barriers  can  have  an  important  economic  impact  for  manufacturers  since,  at  the  very  least, 
they  require  the  adjustment  of  products  and  production  facilities  to  comply  with  differing 
requirements. As EU companies increasingly become part of global supply chains, differences 
in  regulations  and  standards  increase  the  cost  of  participation  in  the  global  economy  and 
reduce the competitiveness of local companies in the global market. 

With respect to the regulatory issues mentioned with regard to China, India, Japan and Russia 
earlier in this report, these could potentially affect EU exports worth of around €13.7 billion 
in  2009.  Regulatory  barriers  are  also  very  significant  obstacles  to  transatlantic  trade.  They 
range  across  many  sectors,  such  as  cars,  where  US  safety  standards  entail  42  standards  to 
which  manufacturers  of  cars  and  equipment  sold  in  the  US  must  conform  and  which  differ 
from  international  standards  or  textiles  with  far  reaching  requirements  foreseen  by  the 
Consumer Product Safety Improvement Act. 

Some  regulatory  obstacles  are  simply  due  to  differences  in  the  regulatory  approach.  These 
differences may be perfectly legitimate and simply reflect historical evolutions in regulatory 
approaches,  differences  in  income  levels,  consumer  preferences  and  risk  perceptions. 
However, in many cases, the differences – such as double-testing requirements and excessive 
documentation  needs  -  are  used  in  a  more  systematic  way  with  a  view  to  favouring  or 
protecting  domestic  production.  While  the  latter  will  need  a  strong,  focused  and  assertive 
response  from  the  EU,  the  former  needs  to  be  addressed  through  more  systemic,  long-term 
cooperation  and  dialogue,  enhancing  in  particular  transparency  and  predictability  of 
regulatory regimes.  

The example of the Chinese measures in the information and technology sector mentioned in 
section  2  illustrates  problems  associated  with  regulatory  standards.  In  defining  security 
concerns,  the  Chinese  measures  go  well  beyond  common  practice  in  other  countries  and 

33 

COM (2010) 343 final, 07.07.2010; http://trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146307.pdf 

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relevant  international  standards34.  The  need  to  comply  with  Chinese  home-grown  standards 
imposes considerable costs on European companies. While high level interventions have led 
to  some  adjustments  of  the  Chinese  policy,  the  basic  problem  of  non-recognition  of 
international standards still remains. The EU engages with the Chinese authorities through a 
number of regulatory dialogues with the objective of making the case for using international 
standards  and  further  engaging  China  in  international  standardisation  organizations.  Clearly 
the stakes are very important and regular high level discussions, including at the High Level 
Economic  and  Trade  Dialogue  but  also  at  Summits,  will  be  needed  to  achieve  tangible 
progress.  

As  it  is  usual  in  regulatory  issues,  preventive  action  before  measures  are  adopted  is  much 
more  promising  than  attempting  to  lift  measures  which  have  already  gone  through  the 
legislative  process.  This  needs  to  be  factored  into  the  EU's  strategy  to  cope  with  regulatory 
issues. 

In the same sense, the use of trade barriers in the form of food safety, animal and plant health 
rules,  as  shown  by  the  important  obstacles  described  in  section  2  for  Russia  and  India  has 
increased considerably during the last years, creating serious problems for EU exporters. The 
Russian and Indian examples show that governments frequently go beyond what is required 
for  protecting  the  health  of  their  consumers  and  use  SPS  restrictions  to  shield  domestic 
producers  of  agricultural  products  from  fair  competition.  As  tariff  barriers  for  agricultural 
products  will  be  progressively  reduced  over  the  years  to  come,  the  risk  that  such  problems 
become even more wide-spread in the future is real.  

3.7. 

Customs-related barriers  

As demonstrated in section 2 by the Russian  customs  measures  and  the  Argentinean  import 
licensing system, traditional customs barriers continue to exist alongside more sophisticated 
new  forms  of  measures.  Measures  in  both  countries have increasingly  given rise to concern 
for European exporters since the onset of the financial and economic crisis in 2008. A detailed 
analysis  of  the  implementation  of  the  measures  reveals  a  consistent  pattern  of  lack  of 
transparency, administrative discrimination in the form of burdensome procedures and often 
arbitrary interpretation of existing rules, e.g. on customs valuation.  

The  EU  has  vigorously  acted  such  measures,  in  particular  where  there  are  good  reasons  to 
believe that the measures are not WTO-compatible, such as in the case of Argentina's import 
licensing system. However, in the latter case, even  concerted  action  in  the  WTO  with  other 
partners  equally  affected  by  the  measures  did  not  yield  major  results.  Consideration  will 
therefore have to be given as to whether other means, such as formal WTO dispute settlement 
procedures or more political intervention is warranted.  

4. 

THE  WAY  FORWARD:  HOW  CAN  IMPORTANT  MARKET  ACCESS 
BARRIERS BE ADRESSED MORE EFFICIENTLY?  

Although  the  exact  economic  impact  of  the  barriers  mentioned  in  this  report  cannot  be 
quantified in detail, European exports potentially affected by such measures are in the range 
of  €96  to  130  billion  (9  to  12  %  of  EU's  to tal  exports  in  2009)  and  EU  imports  of  raw 

34 

The  relevant  standard  would  be  ISO/IEC  15408  which  is  complemented  by  a  Common  Criteria 
Recognition Agreement to regulate mutual recognition of IT security certificates.  

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materials worth around €6 billion 35. These estimates of "potentially affected trade" should not 
be interpreted as an indication of EU "lost trade". Lost trade is implicitly only a fraction of 
"affected trade" and should be considerably lower, but - given the available information and 
complex nature of trade barriers - cannot be quantified accurately.36 The figures nevertheless 
give a notion of the trade volumes potentially affected by the various measures. Solving these 
barriers  would  thus  have  a  significant  impact  on  EU  exports  and  would  provide  additional 
access to important government procurement markets. In addition to the economic gains to be 
derived from the EU's negotiating agenda, this would be a very important contribution to the 
external dimension of the Europe 2020 objectives of smart, sustainable and inclusive growth.  

However, to achieve these  gains, it is imperative that all players involved, notably the - the 
Commission, as representative of the EU in trade matters, assisted by the EU delegations, now 
integrated  in  the  European  External  Action  Service  on  the  one  hand,  and  the  competent 
authorities of the Member States on the other hand – engage proactively. What is needed are 
joint  efforts  at  all  levels  to  convey  concerted  messages  to  our  strategic  partners  underlining 
the  importance  for  our  bilateral  relationship  of  solving  the  barriers  listed  in  this  report. 
Speaking with a single voice is crucial in this respect. If the EU can act in a concerted and 
determined  manner,  deploying  the  different  facets  of  our  external  relations  tools  in  a 
calibrated  way,  our  strategic  partners  will  be  more  likely  to  address  our  concerns 
constructively.  

In this regard, the European Council in its sessions of September and December 2010 set out 
the  need  to  define  the  EU's  interest  vis-à-vis  its  strategic  partners.  It  mandated  the  High 
Representative  of  the  Union  for  Foreign  Affairs  and  Security  Policy/Vice-President  of  the 
Commission, in cooperation with the Commission and the Foreign Affairs Council, to "set out 
common European interests and identify all possible leverages to achieve them". This report 
under  the  enforcement  agenda  of  the  EU's  renewed  trade  policy  –  can  be  seen  as  a 
contribution  to  that  mandate.  The  barriers  listed  in  this  report  and  the  accompanying 
horizontal analysis constitute a selection of market access issues which should be addressed 
with the EU's strategic partners as a matter of priority. 

A number of specific  high  level  fora  already exist with some of the EU's strategic  partners, 
such as the Transatlantic Economic Council with the US, the High Level Economic and Trade 
Dialogue  with  China  or  the  High  Level  Group  with  Japan.  Market  access  and  notably 
regulatory  barriers  play  an  important  role  in  these  fora.  Yet,  for  the  EU's  interests  to  be 
pursued  more  vigorously,  the  EU  will  also  have  to  be  ready,  where  appropriate,  to  raise 
market access barriers at Summits and other top level meetings.  

35 

36 

This number only covers export restrictions on agricultural and industrial raw material imports which 
account for only one-third of the EU's total raw material imports (11% of total EU imports). The other 
two-thirds of the EU's raw material imports concern energy raw materials (23% of total EU imports). 
Whilst  detailed  statistics  with  respect  to  export  restrictions  on  energy  raw  materials  are  still  being 
compiled,  it  is  clear  that  such  restrictions  prevail  in  a  number  of  key  energy  producing  countries.  A 
significant example  in this respect is Russia where there is a 30% export duty on gas affecting €13.1 
billion of EU gas imports (28 % of total EU imports of gas).  
These  estimates  based  on  existing  trade  flows  are  also  affected  by  other  factors  that  tend  to 
underestimate the real value of "potentially affected trade". For instance, the bigger the trade barrier in 
question the lower the observed "affected" trade flows will be. At the extreme, in the case of an export 
or  import  ban,  there  will  be  no  observed  trade  and  that  will  provide  no  effect  for  the  "potentially 
affected trade" metric, while in reality the economic impact of such a barrier is very significant. This 
measure may therefore tend to give more weight to lower barriers and underestimate the importance of 
more stringent barriers. 

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Obviously,  offensive  and  defensive  interests  are  linked  and  reciprocity  and  mutual  benefits 
are important concepts in international relations and trade policy in particular. It will therefore 
have  to  be  seen  whether  leverage  can  be  gained  by  linking  the  EU's  concerns  about  market 
access  barriers  on  its  strategic  partners'  markets  to  their  respective  interests  in  increased 
access to the EU market. In this respect, for government procurement, as set out in section 3 
of  this  report,  a  specific  initiative  will  be  proposed.  In  all  other  fields  the  existing  toolbox 
needs  to  be  used  to  its  fullest  potential  in  order  to  convince  the  EU's  partners  to  match  its 
opening efforts.  

The EU Delegations will play an important role in pursuing European market access interests. 
Delegations  are  our  antennae  for  analysing  the  situation  in  the  domestic  systems  of  our 
strategic partners, including economic and political interests and industrial policy practices. It 
will  be  important  to  use  these  antennae  so  that  high  level  political  interventions  on  market 
access  barriers  are  well  prepared  and  based  on  all  available  political  and  economic 
information and are followed-up appropriately and timely on the ground. 

This reports sets out an ambitious agenda. Its objective is to elevate and calibrate the level of 
EU  intervention  on  specific  concerns  with  access  barriers  in  the  markets  of  our  strategic 
partners. Concerted action at the highest political level can make the difference to the benefit 
of export and investment interests of European companies and ultimately growth and jobs in 
Europe.  The  Commission  will  regularly  monitor  progress  on  this  agenda,  and  report  on  an 
annual basis to the European Council. 

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