Source: EURLEX
Language: en
Format: md

**COMMISSION OF THE EUROPEAN COMMUNITIES**

Brussels, 11.03.1998
COM(1998) 125 final

COMMUNICATION FROM THE COMMISSION

TO THE COUNCIL, THE EUROPEAN PARLIAMENT
AND THE ECONOMIC AND SOCIAL COMMITTEE

###### **THE NEW TRANSATLANTIC MARKETPLACE**

###### **TABLE OF CONTENTS**

**A. RATIONALE**

**1.** **INTRODUCTION** **1**

**2.** **THE POLITICAL DIMENSION** **3**

**3.** **THE ECONOMIC BENEFITS** **5**

**B.** **TRADE POLICY CONSIDERATIONS**

**4.** **RELATIONSHIP WITH THE MULTILATERAL SYSTEM** **6**

**5.** **WTO COMPATIBILITY** **7**

**6.** **RELATIONS WITH THIRD COUNTRIES** **8**

**C.** **ENVIRONMENT**

**7.** **ENVIRONMENTAL CONSIDERATIONS** **10**

**D.** **COMPONENTS** **OF** **THE NTMA**

**8.** **FREEING TRADE IN GOODS OF TECHNICAL BARRIERS** **11**

**9.** **TARIFF ELIMINATION** **15**

**10.** **SERVICES** **16**

**11.** **GOVERNMENT PROCUREMENT** **19**

**12.** **INTELLECTUAL PROPERTY** **20**

**13.** **INVESTMENT** **22**

**14.** **OTHER POSSIBLE COMPONENTS** **23**

**E.** **OTHER ASPECTS OF THE INITIATIVE**

**15.** **IMPLICATIONS FOR EU COMMON POLICIES** **25**

**16.** **INSTITUTIONAL ASPECTS** **27**

**F. CONCLUSION** **27**

**ANNEX: KEY ECONOMIC FIGURES** **28**

**COMMUNICATION FROM THE COMMISSION**

**TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE**
**ECONOMIC AND SOCIAL COMMITTEE**

**THE NEW TRANSATLANTIC MARKETPLACE**

**A.** **RATIONALE**

_**1.**_ _**INTRODUCTION**_

The economic relationship between the EU and the US is of vital importance to both.
In 1996 two way trade in goods and services amounted to more than 355 bn ECUs.
The EU and the US account for around 19% of each other's total trade in goods. It is
estimated that high technology products account for 20% of the two-way trade flow.
In 1995 EU-US trade in services accounted for over 38% of total bilateral trade. The

EU is by far the biggest investor in the US accounting for 59% of total foreign direct
investment (FDI) by 1996. At the same time 44% of US FDI is in the EU. Further
details are in the Annex.

Through progressive rounds of multilateral negotiations, and bilaterally since the
adoption of the New Transatlantic Agenda (NTA) in 1995, we have achieved progress
in lowering remaining barriers to trade and investment. But, as the Commission's
annual reports on United States Barriers to Trade and Investment illustrate, significant
obstacles remain.

The main reason is that the regulatory framework for EU-US trade and investment in
goods and services has not kept pace with new market developments. While tariffs on
industrial products have been substantially reduced, "peak" tariffs remain in some
sensitive sectors. These are particularly numerous on the US side. But the main
problem is non-tariff barriers. These gain increasing significance with the growing
importance of EU-US trade in sophisticated manufactured goods and in services, as
well as growing foreign direct investment. These areas of activity are subject to a
range of domestic regulations and standards, reflecting among other things legitimate
social concerns about protection of public health and safety or the environment.

The EU and US business communities have frequently identified these regulatory
issues as their main concern. Since the rules often diverge widely they can act as
hidden barriers. They increase costs for European and American consumers and
business. They also lead to delays in exploiting new economic and technological
opportunities, and can hinder the creation of competitive jobs. They therefore impede
economic advance. In short, these are now among the most serious issues affecting
Transatlantic trade and investment.

In addition, there has recently been an increase in the number of difficult trade
disputes between the EU and the US. Many of the recent problems are different from

traditional trade disputes in that they have their roots in the sort of problems described
above. Despite our great efforts we have not so far been able to establish an effective
mechanism to prevent them. As a result, they require a substantial investment of time
and effort, damage European and US economic interests and have a disproportionately
large negative political impact.

The question we should address is whether we can do more, and more effectively, to
facilitate EU/US trade in goods and services and at the same time to avoid or resolve
these problems, while ensuring that our high level of protection of public health and
the environment is maintained and can be further developed autonomously. Under the
NTA we have made some progress through a modest 'step-by-step' approach to
resolving individual problems and promoting liberalisation in particular sectors. But
the protracted negotiation leading to the 1997 Mutual Recognition Agreement showed
that this approach is slow and can produce only limited results.

For this reason the Commission has given careful thought to whether we should now
pursue a new, more comprehensive and ambitious approach to making a reality of the
New Transatlantic Marketplace (NTM), which has from the start been one of the key
objectives of the NTA.

Any such proposal should meet all the following requirements:

i) it should address the real barriers to EU-US trade and investment;
ii) it should bring economic benefit to the EU and the US commensurate with the
effort involved;
iii) it should not damage, and should indeed promote our objectives in the future
multilateral negotiations within the WTO, to which we are committed;
iv) it should not lead to the creation of new trade obstacles to third countries or
reduce their access to EU and US markets. Nor should it weaken their support
for multilateral liberalisation;
v) it should be ambitious, capture political interest, but be technically achievable;
vi) it should be consistent with and should not jeopardise the agreed multilateral
rules of the WTO and other international fora (e.g. OECD, WIPO etc.);
vii) it should serve to enhance the broader political relationship between the EU
and the US;
viii) it should benefit consumers and should preserve our high level of protection
for health, safety, consumers or the environment;
ix) it should not impede the further development of the Community acquis.

Any proposal in this area should serve to stimulate further multilateral liberalisation
through deeper liberalisation and a firmer set of rules at the bilateral level, which
could later be extended to other partners. Bilateral liberalisation should also focus on
those impediments in EU and US trade where the multilateral route cannot offer early
and effective solutions.

Having considered all these factors, the Commission proposes that a negotiation
should be launched for a New Transatlantic Marketplace Agreement (NTMA) to
achieve the following objectives:

_**d**_

i) a widespread removal of technical barriers to trade in goods through an
extensive process of mutual recognition and/or harmonisation, promoting both
consumer and business interests;
ii) a political commitment to eliminate by 2010 all industrial tariffs on a MFN
basis, through multilateral negotiations, provided that a critical mass of other
trading partners do the same;
iii) a free trade area in services, bearing in mind the criteria and requirements
established by the Council;
iv) liberalisation beyond multilateral or plurilateral agreements in the areas of
government procurement, intellectual property and investment.

The individual elements of this proposal are considered in detail in section D.

We should also pursue strengthened bilateral co-operation in areas such as: trade
facilitation, customs procedure simplification, SME partnerships, sustainable
development and the environment (taking into account ongoing bilateral and
multilateral initiatives). In certain of these areas (e.g. customs, competition and
science and technology) existing agreements already provide a framework for such a
cooperation. The NTM Agreement will be pursued within the broader framework of
the New Transatlantic Agenda. The NTA Action Plan will continue to be pursued.

A number of general methodological conditions should be clearly established. Before
a negotiation begins, there should be a clear understanding with the United States on
which areas are covered and which are excluded. In conducting the negotiation, the
EU would give due consideration to factors affecting competition, including state
aids. It should be clear from the start that an Agreement should be binding on the
federal states. Nor should it weaken existing EU agreements with other third
countries.

The initiative should take the form of a single comprehensive agreement. This might
seem to be harder to achieve than the present step-by-step approach in terms of
negotiation and ratification. On the other hand, it would have the considerable
advantage of giving greater certainty of the implementation of the agreed
commitments, including where necessary, through domestic legislative changes.
Perhaps .more important, the dynamic which multi-issue, multi-sector negotiations
engender should make it possible to address some entrenched and long-standing
barriers which at present appear intractable in isolation.

This is not a proposal to create an internal market with the US, but it would allow the
EU to take advantage of the unique experience we have gained from the completion of
the Internal Market and to adapt some of the principles underlying it to the different
EU-US context.

_**2.**_ _**THE POLITICAL DIMENSION**_

The proposal is more than a trade policy initiative. It is also an important initiative for
the EU's broader policy towards the United States, and should be considered in that

light. Since the end of the Cold War we have taken a number of steps to restructure
and refocus the EU's links with the US, which remains our most important and
complex external relationship, and to reinforce US support for European stability.
Another key objective is to deter the American tendency towards unilateralism, which
has included the adoption of unacceptable extraterritorial legislation such as the
Helms-Burton and d'Amato Acts. We should continue firmly to oppose action of this
sort. An early comprehensive settlement of our differences arising from the HelmsBurton and D'Amato Acts, based on the April 1997 Understanding, remains

necessary.

The New Transatlantic Agenda of 1995 established a habit and pattern of co-operation
and joint action between our administrations at all levels and on many issues. It has
been invaluable in this regard, and has enabled us to achieve a number of tangible
results including the Mutual Recognition Agreement of 1997 and other agreements.
However, the NTA as it now stands has not been able to engage the highest level of
political attention on both sides of the Atlantic, and is not sufficiently dynamic to
deliver major political and economic results, although it has delivered useful ones.
The time is ripe to consider whether a more ambitious, comprehensive approach is
required.

The proposal to create a New Transatlantic Marketplace reducing barriers to trade and
investment was an integral part of the NTA, but has not yet been developed in a
coherent manner. This initiative takes up that challenge, building on the steady
development of the EU's relationship with the US and on the dramatic growth of our
economic relations, notably in services and investment. It is designed to use an
economic instrument to give a much broader impetus to the overall political
relationship; to produce important economic benefits; and to provide a new
mechanism and stronger incentives to prevent and resolve disputes between us.

The timing for such an initiative is good. The European Union has established a
leading role in international trade policy. Our economy is set to grow strongly. We
stand on the threshold of the Single Currency, and we have behind us the experience
gained from building the Internal Market. The broader international context is also
favourable: Europe at present is a strong and stable partner for the United States.

At the same time, this initiative has benefits going beyond the bilateral political and
economic relationship with the United States. For reasons discussed below (section
4), it will promote achievement of our objectives in future multilateral trade
negotiations.

It also gives the EU an opportunity to pursue proactively our own clear policy
objectives in promoting the interests of European citizens and advancing important
values of European society. It should be pursued in a manner which preserves and
further enhances our high standards of consumer protection, health and safety. It
should not affect internal EU policy making on the provision of services of general
economic interest, as recognised in the relevant EC Directives and the Amsterdam
Treaty. The macroeconomic growth predicted (see section 3) would bring potential
for significant job creation in the EU. In ways such as these, the NTMA will enable

us to respond to some of the uncertainties arising from global economic liberalisation.
It would also lay the basis for better and more effective EU-US dialogue and cooperation on issues like sustainable development and environmental protection,
including at the multilateral level.

_**3.**_ _**THE**_ _**ECONOMIC BENEFITS**_

Macroeconomic studies, including studies carried out at the request of the
Commission, suggest that the removal of existing tariff and non-tariff barriers to
Transatlantic trade in industrial goods and in services would have positive macroeconomic effects for both partners. For the EU, it could add some 125 billion ECU
(over 1%) to annual national income, broadly commensurate with the effects of the
Uruguay Round. Another 25 billion ECU annually would be added if the initiative
achieved a wide multilateral elimination of industrial tariffs. At the micro-economic
level, it would mean greater economies of scale, reduced costs for producers and
consumers and less uncertainty for EU and US firms.

A bilateral elimination, on a preferential basis, of all industrial tariffs between the EU
and the US is not part of this proposal. The average level of tariffs prevailing in both
economies is already low, though major gains remain to be made in sectors where
'peak' or significant tariffs remain. These gains will be well worth having, but much
greater gains will accrue from the elimination of industrial tariff barriers on an MFN
basis involving a broad range of other countries, on the model of the ITA agreement.
This would have the added advantage of addressing the recent difficulties which
European firms have experienced in key mid-income country markets.

Still larger benefits accrue once non-tariff barriers are addressed, as a result of many
factors, including increased efficiency, larger scale economies (for instance when,
through the mutual recognition or harmonisation of technical requirements,
production lines can be unified), more transparent procedures, lower costs of
complying with different standards, better intellectual property protection, less
intellectual property litigation, greater trade, investment and procurement
opportunities (the last estimated at 35-40 bn USD). In some sectors, benefits to be
gained by Small and Medium-sized Enterprises (SMEs) are likely to outweigh those
expected by large companies, with significant employment benefits. Overall, the
realisation of a freer Transatlantic Marketplace will improve the conditions and
opportunities for business on both sides of the Atlantic with a beneficial economic
impact on industry, consumers and the EU and US economies as a whole. The
economic aspects of the proposal will be the subject of further examination in
accordance with the requirements established by the Council. The Commission will
now proceed to produce the requisite more detailed impact studies as a further
contribution to discussion in the Council of these proposals, and indeed their further
elaboration.

**B.** **TRADE POLICY CONSIDERATIONS**

_**4.**_ _**RELATIONSHIP WITH THE MULTILATERAL SYSTEM**_

Further liberalisation in the form of comprehensive multilateral negotiations
conducted within the framework of the WTO remains the central trade policy
objective of the EU. The proposed NTMA is carefully designed to promote this
objective, whilst in itself delivering major economic and political benefits for the two
partners. The underlying principle is that each part of the NTMA should encourage
and facilitate broader international liberalisation.

The proposed tariff initiative is explicitly and exclusively multilateral; the EU and the
US will make a joint commitment that, in future multilateral negotiations, they will
eliminate all industrial tariffs by 2010 if a critical mass of trading partners (understood
in terms of volume of trade and/or numbers of countries) do the same. A bilateral
preferential deal is thus ruled out.

In the area of technical barriers to trade, the multilateral rules recognise the possibility
of bilateral recognition of equivalence of the parties' certification systems. This is an
area of trade where full mutual trust in a partner's capacity to fully protect high levels
of product safety is of paramount importance, to maintain common protection
unaffected by trade rules. For this reason, the prospects for multilateral progress in
the foreseeable future are limited. Nevertheless, more rapid progress can be made
between two major economies with similar degrees of economic and technological
development as well as similar public policy objectives. Rather than becoming
obstacles to other partners, common standards will provide easier market access to the
two largest trading entities in the world.

In services, the intention of the NTMA is to promote both a successful and WTOcompatible bilateral arrangement but also to enable the EU to prepare the ground for
successful multilateral negotiations in services, due to start in the year 2000.

There are several ways in which a NTMA in services could support the multilateral
approach:

- The demonstration effect that differing regulatory approaches can indeed be
bridged between major trading partners, and therefore are politically and
technically capable of being bridged more widely.

- The incentive effect whereby EU and US enjoyment of a liberalised preferential
area for services will attract strong interest from other trading partners for
participation in the process (thereby offering a stepping stone towards wider
liberalisation of various regulatory barriers among trading partners). Our ultimate
objective would be that the liberalisation achieved in the NTM would be matched
multilaterally.

- The creation of models for future WTO rule-making, for example by moving from
hybrid to negative listing, i.e. everything is liberalised unless subject to a specific
exemption in a schedule.

- The exploration of ways in which partly or completely excluded areas in the
current GATS could be tackled bilaterally and therefore opened up on a
multilateral basis.

These effects outweigh any possible concern that a bilateral initiative could weaken
support for further liberalisation in GATS. On the contrary, the NTMA should enable
us to go further and faster than we would otherwise have been able to in achieving EU
objectives in these negotiations.

More generally, and in the areas of government procurement, intellectual property and
investment in particular, the NTMA approach should be'both to pursue full
compatibility with multilateral rules and - at the same time - to _seek "better" rules_
and/or _"deeper" liberalisation_ with respect to the existing WTO framework as well as
in new areas not yet fully covered by it, so as to serve as a model for future WTO
rule-making. Such a policy stance would emphasise the leading role of the
Transatlantic partners in underpinning and further developing the multilateral trading
system. In each area the "best practice" in terms of liberalisation should be sought, so
as to achieve not only the largest economic benefits bilaterally but also a
demonstration effect vis-à-vis other trading partners.

**5.** _**WTO COMPATIBILITY**_

The NTMA described in this Communication would be fully WTO-compatible. In
the _tariff_ area the initiative is fully compatible since it is foreseen on a MFN basis.
The MFN principle applies in general also in the area of _technical requirements._
WTO Members are not entitled to maintain differing technical specifications for
products originating from different countries, nor to require different procedures of
conformity assessment. This latter requirement implies that where a country does not
regulate safety of a product at all, or where it is satisfied with a suppliers' declaration
of conformity, it has to extend this treatment to all WTO Member countries.
However, two areas for bilateral (non-MFN based) co-operation exist and the NTMA
will make full use of them.

First, _mutual recognition._ Where WTO Members require an independent verification
of a product, or mandate a government agency to verify compliance, Members may
bilaterally recognise the competence of their respective certification bodies. The
WTO/TBT agreement explicitly recognises this right, while requiring "positive
consideration" to recognise other Members that could demonstrate equivalent
competence. Second, _harmonisation._ All Members are free to determine the
specifications that products must meet, within certain general rules. Nothing prevents
two countries from harmonising such specifications, provided that these are applied to
other Members in a non-discriminatory manner.

In the area of _services_ the NTMA will comply with the GATS requirements, which
are similar to those established under Article XXIV of GATT. Article V (Economic
Integration) of GATS sets forth several conditions which would need to be met, in
particular: substantial sectoral coverage (in terms of a number of sectors, volume of

trade affected and modes of supply); no increase in the overall level of barriers to
trade in services originating in other GATS Members within the respective sector; and
the elimination of substantially all discrimination (through the elimination of all
existing discriminatory measures and/or the prohibition of new or more
discriminatory measures). The "substantial coverage" condition requires that, in
principle, all service sectors are adequately covered (although there is some scope for
interpretation as to whether this includes sectors not presently covered in the GATS,
such as air transport and maritime transport, or where appropriate MFN exemptions
have been listed). The 'substantial coverage' condition also requires that provisions
on investment (commercial presence mode of supply) and also on the supply of
services implying the temporary movement of certain categories of physical persons
(including key personnel) be included as well.

As for _mutual recognition in the services_ _area,_ article VII of the GATS specifically
provides for the conclusion of agreements for the mutual recognition of education,
qualifications or ability to provide services. Furthermore, the Annex on Financial
Services allows mutual recognition of prudential measures, facilitating the
establishment and provision of financial services. The scope for removing technical
and legislative barriers to trade could be examined for several services sectors, such as
regulations governing bank branches, securities regulations and the licensing of
professionals. Article VII requirements (and a similar requirement in the Annex on
Financial Services) to give adequate opportunity for similar agreements with other
countries would, however, need to be observed.

With regard to _government_ _procurement,_ WTO rules are to be found in the plurilateral
Government Procurement Agreement (the GPA). The question of MFN treatment
should be considered within the specific context of the GPA agreement which, on the
one hand, imposes an MFN treatment between contracting parties and on the other
hand, allows contracting parties to limit this by inserting "General Notes" in
Appendix 1 to the Agreement which reintroduce bilateral relations based on
reciprocity between two or more parties. Whilst an NTMA initiative in procurement
would not encounter WTO compatibility problems, commitments undertaken by
either party might, in some cases, involve extending EU-US bilateral concessions to
EEA partners and, depending on the areas involved, to other GPA contracting parties.

In the _intellectual property_ area, for the NTMA to be WTO compatible, any
modifications to domestic legislation would have to be applied by the two Parties in
compliance with the national treatment and MFN provisions contained in the TRIPs
Agreement.

In the _investment_ area, other than in services (see above), there are no WTO
obligations affecting this proposal.

_**6.**_ _**RELA**_ _**TIONS**_ _**WITH THIRD COUNTRIES**_

The NTMA will not involve the creation of any new barriers with the rest of the
world. Moreover, it is designed to encourage and facilitate wider multilateral

liberalisation, and the elements of the Agreement which provide for bilateral
liberalisation would not necessarily remain exclusive to the EU and the US. It is also
designed to permit extension to those third countries who are willing and able to
match the commitments. While the impact on third countries, including in particular
countries preparing for accession to the EU, is a factor to be borne constantly in mind
during negotiation, overall there is likely to be a net positive and dynamic effect,
which can be illustrated for each NTMA component, referring to different groups of
third countries.

**Tariff liberalisation**

On tariffs, the conditional commitment to reduce industrial tariffs to zero would be on
a strictly MFN basis, to be realised only by 2010. The NTMA as such will thus not
have any effects on third countries in this area. However, once such a multilateral step
would be taken, there will be a net positive effect on third countries. Those third
countries which will join such a conditional EU-US offer and undertake similar
commitments will provide the necessary 'critical mass' to turn the elimination of
industrial tariffs into a reality. They will gain enhanced access to EU and US markets,
and to each others' markets. At the same time they will open their own markets to EU
and US industrial products, which would be a clear sign of their economic advance
and the completion of a global process of reduction of industrial tariffs, which began
in fact with the first Round after the creation of GATT in 1947.

Those third countries which are not in a position to submit such commitments, and
this is likely in practice to be the case exclusively for the least developed countries,
would benefit from greatly enhanced market access at zero tariffs not only to EU and
US markets but also to neighbouring mid-income developing countries which
undertook similar MFN tariff elimination commitments, without having to give up
their national tariff protection.

These effects should be considered alongside the reduction of preferential market
access currently enjoyed by ACP countries under the Lomé Convention, and any
increase of competition in the Community market. The EU and US should also
reaffirm their commitment to ensure that less developed countries secure a share in
the growth in international trade commensurate with the needs of their economic
development, with a view to their smooth and gradual integration into the world
economy, as well as their commitment to address trade and development issues in the
WTO. Further economic analysis, to be conducted before firm commitments are
made in WTO multilateral negotiations, should cover the impact of the proposed
elimination of industrial tariffs on the less developed countries, including the
consequences of increased competition, the extent to which they will have to open
their own markets, and the extent to which they will enjoy increased access in other
markets.

**Free trade area in services**

On services, as indicated above, the NTMA would fully meet GATS rules and would
be designed to be widened to the maximum extent possible into multilateral

**/ V**

liberalisation. The dynamics of the transatlantic services market should render it
attractive to join the more ambitious NTMA services commitments on a reciprocal
basis by countries who were in the past rather reluctant to join in multilateral
liberalisation initiatives. There will be every reason for third countries to seek to
match the NTMA bilateral liberalisation commitments because the EU and the US

would in return bind their matched offers in the liberalisation package emerging from
the GATS 2000 talks. The NTMA would not, in respect of any Member outside the
agreement, raise the overall level of barriers to trade in services within the respective
sectors or sub-sectors compared to the level applicable prior to such an agreement
(GATS Article V(4)). Furthermore, third country services suppliers can benefit as, in
accordance with GATS Art.V(6), a company incorporated and engaged in substantive
business operations in the EU or US would be entitled to benefit from an EU-US FTA
in services regardless of the ownership of its capital.

**Technical barriers to trade**

As regards the area of technical barriers, the EU is free under the WTO-TBT code to
conclude mutual recognition agreements and to accept technical regulations of other
countries as equivalent. The impact on third countries varies according to the degree
of regulatory convergence which has been agreed with other countries. The countries
most concerned are those which either apply the _acquis communautaire_ of the Internal
Market (e.g. Turkey, ÈFTA Members of the European Economic Area) or those who
are committed to introduce Internal Market rules as part of the pre-accession strategy
for candidate countries (CEECs, Cyprus). These countries should benefit most from
the NTMA since their products would be produced according to those EU standards
which would in future be recognised as being equivalent by the US or be harmonised
in the transatlantic marketplace. Other third countries could eventually join the
NTMA mechanism covering technical barriers, provided these countries were willing
and able to undertake the same comprehensive regulatory commitments. This
challenge would be particularly relevant for other major trading partners, who
maintain hitherto substantial regulatory trade barriers.

**C.** **ENVIRONMENT**

**7.** _**ENVIRONMENTAL CONSIDERA**_ _**TIONS**_

All commitments under the NTMA should be implemented consistent with health,
safety and environmental objectives and should aim at ensuring a high level of
protection. This is a fundamental legal and political requirement which results
directly from the provisions of the EC Treaty. Regulatory convergence in areas
relating to health, safety and the environment should therefore be based on a high
level of protection and should in no way lower of hamper the further development of
the acquis in this area.

To ensure the possibility for the parties to maintain, establish and implement effective
domestic policies and measures to ensure a high level of health, safety and
environmental protection, the Agreement should include a specific safeguard

**^7**

mechanism for certain measures in these areas which would otherwise be inconsistent

with the Agreement. This safeguard mechanism could take the form of a general
exception clause following the precedent of GATT Article XX and GATS Article
XIV.

The environmental dimension needs to be taken into account throughout the
negotiating process. Bearing in mind the recommendations of the OECD made in
1993, it could also be appropriate to review the environmental impact of the NTMA,
allowing parties to identify potential environmental effects and to devise effective
policy responses.

It should also be noted that the lack of US participation in several multilateral
agreements (for example the biodiversity convention, and the Basle Convention and
the Kyoto Protocol under the Climate Change Convention) can distort
competitiveness and causes substantial asymmetry between EU and US international
obligations in the field of environment. Full US participation in these conventions is
therefore highly desirable.

**D.** **COMPONENTS OF THE NTMA**

_**8.**_ _**FREEING TRADE IN GOODS OF TECHNICAL BARRIERS**_

**Technical barriers still hamper Transatlantic trade**

Differences of law, procedure and practice on both sides of the Atlantic at present
cause many technical barriers to the free movement of goods.

Barriers typically arise from a divergence in obligations concerning:

- information and labelling of goods;

- technical specifications or performance requirements relating to goods and their
packaging;

- specifications concerning tests and test procedures with which goods must
comply;

- any declarations or certificates that have to be provided;

- accreditation of bodies entitled to carry out tests or issue certificates; and

- marking of goods to indicate their conformity with requirements.

Technical specifications agreed by standards bodies, or arising _de facto_ from the
practices of major market players, are also a potential source of trade barriers, where
voluntary compliance with them brings marketing advantages.

Such divergence, whether it arises at the regulatory or other levels, may reflect
different positions as regards the desirable level of security, the means used to achieve
that level, and the method chosen to demonstrate conformity with the requirements.
Nevertheless, there is no unavoidable reason why such legitimate differences should
act as barriers to trade.

**What should an NTMA achieve in this respect**

The key to barrier-free trade is to achieve a climate of public confidence in the safety
and security of products placed on the market, on either side of the Atlantic. Where
the EU and the US share similar concerns and aims regarding the protection of public
health, safety, consumers and the environment, this should be achievable. The NTMA
should work towards this goal by developing a framework for convergence of law,
procedure and practice involving the various legislative and regulatory bodies, as well
as for the application of the principle of mutual recognition.

To this end, and taking due account of the need to preserve our high level of
protection for health, safety, consumers and the environment, the NTMA should aim
to create conditions in which goods legally marketed in the territory of one party can,
as far as possible, move across the Atlantic and be marketed in the territory of the
other without facing further formalities or duplicate requirements.

The regulatory structures of the parties are the guarantee of the integrity of their
domestic markets. Without them, those markets could not be maintained. Therefore
the NTMA cannot avoid facing the issue of convergence. Yet the prize is great enough
to justify the effort involved.

It is essential to ensure that the NTMA is implemented in a way consistent with the
fundamental requirements concerning protection of human, animal and plant life or
health and the environment laid down in the EC Treaty. To this end, all measures
under the NTMA aimed at removing technical barriers to trade in goods relating to
these areas should at least maintain our existing high level of protection.. It should
furthermore be recognised that both the EU and the US maintain all the rights, granted
to them under the WTO SPS-Agreement, including to establish a level of sanitary and
phytosanitary protection which is higher than the level resulting from international
health standards. There should be provision for the possibility to take specific
safeguard measures when necessary.

**How can these objectives be pursued**

An appropriate combination of convergence of law, procedure and practice and of the
application of the principle of mutual recognition (which, moreover, are
complementary and not mutually exclusive) will have to be found for different
categories of goods. The aim of an NTMA should be to seek the most ambitious and
trade liberalising such combination, while meeting the requirements in sensitive areas
set out in the previous paragraph. The EU should also be able to develop further its
levels of protection in these areas, while taking into account the differences that may
exist in regulatory approaches and traditions.

Convergence of law, procedure and practice is the key to ensuring that similar public
policy concerns are not pursued through radically different and sometimes
incompatible means, thus giving rise to avoidable and undesirable barriers to trade.
Convergence can be achieved in different ways, and notably through regulatory cooperation and through harmonisation.

_Jlk_

To the extent that those public policy concerns are already being pursued through
different means on the two sides of the Atlantic, there is room for acceptance of such
alternative means to achieve them, insofar as the levels of protection which are to be
achieved are equivalent. This can be achieved through different techniques or a
combination of them, such as mutual recognition of technical requirements; mutual
recognition of conformity assessments; or resort to a supplier's declaration of
conformity.

The public confidence needed to guarantee success to the NTMA means that effective
implementation of commitments on both sides will be crucial* This will require cooperation between regulatory authorities at the appropriate level, covering such issues
as consultation and administrative co-operation, a commitment to implement the
necessary legislation and an effective dispute settlement system.

**In which sectors/products can this be pursued**

The parties will need to identify early in the negotiating process a sufficient number of
candidate sectors/products to produce eventually a balanced and mutually interesting
result. In order to be credible to the business community, there would also need to be
an early and sufficient reduction of any unnecessary or duplicate regulatory burden on
business, through a critical mass of concrete commitments. Longer-term actions
would be developed on the basis of these.

The search for convergence and mutual recognition can be pursued as a priority in
those industrial sectors/products where there is an important existing interest to
Transatlantic industry, such as télécoms, chemical products and motor vehicles. In a
number of these sectors, work is already under way in international _fora,_ such as the
International Telecommunications Union for télécoms equipment, the International
Conference for Harmonisation for medicinal products, or the UN-ECE for motor
vehicles and tyres. Effective implementation on international standards is another
way forward towards a higher level of convergence. Whereas the necessary
arrangements are in place in Europe, the use of international standards is insufficient
in the US. In still other areas there may be scope for building on existing mutual
recognition of tests and certificates, and upgrading the level of agreement to a higher
level of liberalisation.

A number of agriculture-related issues which fall outside the WTO agreement could
be dealt with in the context of the NTMA. In this respect, the soon to be adopted EUUS Veterinary Equivalency Agreement offers the most suitable framework to
intensify and deepen mutual efforts to arrive at more convergence in the area of
veterinary issues while at the same time maintaining each sides' high level of health
protection. Extending the scope of the Veterinary Agreement to cover questions like
animal welfare, phytosanitary issues or other questions relevant in the trade of food
could be foreseen.

The field of biotechnology is highly sensitive. This should not discourage us from
addressing it under the NTM. Systems for facilitating the exchange of scientific

_**siC**_

information relating to such products would be a first step to build confidence and to
promote the greatest possible common approach between the EU and US.

_**9.**_ _**TARIFF ELIMINATION**_

Tariff barriers remain an obstacle both to Transatlantic trade and to trade between the

EU and its other trading partners.

For _industrial_ tariffs, although the average level of industrial tariffs in OECD
economies is low, a variety of tariff peaks remain. The most effective way to remove
these tariffs is on a multilateral basis. However, it has often been necessary in the past
for a number of WTO members to show leadership within the multilateral system by
offering to reduce their tariffs on an MFN basis if the largest possible critical mass of
others follow suit, so as to minimise the risk of free riding and maximise the
liberalising effect and the economic benefits for the EU. This happened during the
Uruguay Round, where there were a number of Quad initiatives for tariff reductions,
and on the Information Technology Agreement (ITA). The NTM would build on that
approach by offering a conditional political commitment to work toward the
elimination, by 2010, of all _industrial tariffs_ on a MFN basis. The two Parties could
agree to go to zero provided a critical mass of trading partners joins. This condition
would need to be spelled out, either in terms of broad geographical coverage or as a
percentage of world trade (as was done in the IT A). The commitment would only turn
into an actual tariff elimination if a critical mass of countries in addition to the EU and

US were prepared to make those reductions. However, the prize of zero industrial
tariffs would be an attractive reason for trying to achieve that critical mass.

Such an initiative would play directly into comprehensive tariff negotiations during
the next global WTO negotiations. It will serve our joint interests in achieving
meaningful tariff reductions from third parties within a set timeframe. This is in
addition to the benefits of removing remaining tariffs between the EU and US.

Fish and fish products are not industrial products in the strict sense. While these
products are not excluded from the NTMA in principle, the specificity and sensitivity
of the fisheries sector may require a selective approach and the current Council debate
on the Commission Communication on the Future of the Market in Fisheries Products
in the European Union [1] will have to be taken into account.

Regarding agriculture a WTO process is already under way in Geneva (Analysis and
Information Exchange, A.I.E.) to prepare the resumption of negotiations on
agriculture which are scheduled to start at the end of 1999. The negotiations will
shape future trade in agriculture. As the WTO Agreement on Agriculture is already
fairly comprehensive, covering internal support, subsidisation and market access
(including tariffs), and future negotiations can be expected to at least mirror such an
approach, a parallel process in an NTM context would not be helpful. Furthermore, it
must also be borne in mind that not only are there fundamental structural differences
between agriculture in the US and the EU; domestic policies of the two parties are
also radically different. Complete free trade would therefore be difficult, if not
impossible, to imagine, without a degree of prior harmonisation of our respective

See COM(97)719 final, 16.12.1997.

###### **_I . -R_**

policies, which is likely to be unacceptable to either side This is why agricultural
tariffs and subsidies cannot be included in the NTM negotiation.

_**10.**_ _**SERVICES**_

A Free Trade Area (FTA) for services would be an ambitious liberalisation initiative.
It would need to meet GATS rules, covering "substantially" all services sectors (as
defined in the GATS) including sectors such as telecommunications, financial
services, business and professional services and transport. We should aim at the
elimination of all restrictions to the right of establishment, either immediately or, for
the most difficult areas, over a transitional period. As regards cross-border services,
the objective should be to establish clear obligations to liberalise such trade. The
services element of the NTMA would combine two main approaches to achieve
effective liberalisation:

- Liberalisation of market access on the basis of host country control: Substantially
all restrictions to market access and to national treatment should be eliminated

within a certain period, for all the covered sectors. For some highly regulated
sectors progress may be particularly difficult on cross border services and the
NTMA would concentrate on the right of establishment of a commercial presence.
The agreement would in principle apply to all modes of delivery (including in
particular cross-border services and consumption abroad).

- Elimination of regulatory obstacles on the basis of mutual recognition: Taking
into account the importance of non-discriminatory regulatory barriers in certain
sectors and also for certain cross-border transactions, the agreement would
envisage the mutual recognition of qualifications, regulations and other
requirements.

**i) Elimination of restrictions to market access and to national treatment**

An NTMA would aim at eliminating remaining restrictions on national treatment and
market access (both through establishment in the form of subsidiaries, branches, or
representative offices; cross-border provision of services; and purchase/consumption
of services abroad) scheduled by both partners in GATS. It would be based - unlike
the Internal Market, and with the exception of cases where mutual recognition for
regulations is achieved - on the application of host country rules and host country
control. As regards the US, it should bind both the Federation as well as the States,
and should offer a degree of market access similar to that offered by the EU. It would
result in benefits for EU industry in the US, such as:

a. New public procurement possibilities, in particular for the highly competitive EU
construction services sector, and equal access for the subsidiaries of EU companies
to public funded research programmes in the US.

b. More opportunities to provide on a cross-border basis banking, securities and
certain insurance services (such as large industrial risks) into the US, and a
substantial relaxation of current rules that prevent EU financial conglomerates from

#### **_4_**

establishing, for instance, banking and insurance operations in the US. The EU
and US should continue to support IOSCO.

c. Greater certainty of access to the US maritime transport services sector, where the
EU industry has a strong position. Other objectives would include the phase out of
the different obligations for US Government-owned or financed cargoes to be
carried on US-flag commercial vessels, and other restrictions, but it must be
recognised that these are sensitive issues.

d. Elimination of nationality restrictions and non-transparent licensing procedures at
State level for professional services, and in particular for certain legal and medical
services, as well as other restrictions regarding a number of business services such
as personnel placement services;

e. Ensuring non-discriminatory access of European operators to provide satellitebased telecommunications services in the US, including satellite personal
communications services (S-PCS) and one-way satellite transmission services.
Elimination of the remaining restrictions to direct ownership in US
telecommunications services (limitation to 20 % of direct foreign shareholding for
radio licenses) and coverage of postal services, without undermining internal EU
policy making on services of general economic interest.

f. Access to the energy services sectors through opening the possibility for the
establishment and acquisition of companies, mainly in the areas of transmission
and distribution of gas and electricity, including facilities supplying ancillary
services, and in the context of recently adopted EU directives.

g. Elimination of remaining restrictions in other sectors such as quality services
(testing, inspection and certification) and environmental services.

For the majority of sectors effectively "covered by the GATS, this should pose no
particular problem. A wide sectoral coverage and a high degree of liberalisation
should contribute to the achievement of an overall balance and to increase the

attractiveness of such a deal. However, it must be recognised that some areas are
particularly sensitive. In the audio visual sector, the exception which the EU secured
in the Uruguay Round, by combining MFN exemptions and the absence of
commitments on national treatment and market access in the GATS agreement, must
be fully preserved and therefore excluded from the NTMA negotiations.

The NTMA will not impact on the current aviation discussions (June 1996 Mandate)
aimed at establishing a common aviation area and which will develop in parallel. This
involves substantial expansion of the air transport services open to airlines of both
sides. It covers market access in a wide sense, through the conclusion of an open
market agreement ensuring equal access to each other's market and _inter alia_ lifting
US restrictions to foreign ownership of US carriers.

An NTMA could also provide a useful opportunity to improve some of the features of
GATS. For instance, the adoption of a negative listing system (everything is
liberalised except for what is listed) as a method of securing liberalisation
commitments as well as increased transparency; and, possibly, the introduction of

_**W**_

generic rules for investment and the movement of people (in particular service
providers, intra-company transferees, business visitors and key personnel). The
NTMA could also break new ground by including in the liberalisation process sectors
which are so far excluded from the GATS basic rules (maritime transport) or which
have not been subject to much attention in the past (e.g. energy services), for which
liberalisation in the EU is recent.

In addition, the national treatment provisions should fully apply to the public
procurement of services, which are provided either on a cross-border basis or on the
basis of a local establishment: at present, Article XIII of GATS excludes the
application of the national treatment and most favoured nation provisions to the public
procurement of services. This is an area where the EU has already opened its market
on a generally non-discriminatory basis, and where considerable new business
opportunities could be created for EU service suppliers because of the present
existence of significant US discriminatory laws and practices based on different _Buy_
_America_ provisions.

**ii)** **Mutual recognition of regulations**

The agreement should make use of the opportunities provided for by the GATS to
conclude agreements for the mutual recognition of qualifications, licenses, or
regulations and other requirements concerning the provision of services in certain
sectors. In many services sectors, it is domestic regulation that now constitutes the
main barrier to foreign businesses or individuals. The sectors that lend themselves
most to MRAs are professional services, educational and training services, and
financial services.

In the few areas where they have been concluded so far, MRAs in the field of
qualifications have been carried out between professional bodies responsible for
governing the different regulated professions. The situation in the EU, with at least
fifteen authorities responsible for governing each profession, and the US, where often
every state has its own authorities, means that mutual recognition in any of the
professional areas is complex. For instance, recent negotiations between the UK and
US accountancy bodies have proved difficult because there are many authorities
seeking recognition in each other's territory. The splintered responsibilities in this
sector might make it ripe for the two transatlantic partners to try to set up a framework
of binding rules within which the responsible authorities (including professional
bodies) could achieve mutual recognition. Taking into account the differences in
education and training between and within both the EC and the US, a model which is
close to the EC's General System of mutual recognition of qualifications would
provide flexibility to require aptitude tests or adaptation periods in case where there
are substantial regulatory differences. A network of administrative cooperation,
applicable to all regulated professions covered by the agreement, could oversee the
functioning of the system and help solve problems. The WTO Guidelines for Mutual
Recognition Agreements or Arrangements in the Accountancy Sector could also be
used as a model.

In the financial services sector examples where mutual recognition of regulations and

possibly home country supervisory control (probably combined with additional
market access elements) could be explored and form a balanced package for both
sides could be:

a. The conditions for the operation of branches. A greater convergence of
regulations and strengthening of co-operation and exchange of information
between EU and US regulators and supervisors and could enable the
establishment of bank branches without endowment capital requirements or
lending or other operational limits based on the branch capital. The agreement
could include the ability to operate branches in more States (in particular, the socalled inter-State _de_ _novo_ branching). Similar facilities could be provided for in
the insurance and securities areas, where there are particular difficulties in
establishing branches in the US. The EC's financial services directives - as well
as Article 59.2 of the Treaty of Rome- contain specific provisions allowing for
negotiations leading to granting third country branches the freedom to provide
cross-border services within the EU;

b. The mutual recognition of mutual funds for cross-border marketing between the
US and the EU - a long-standing EU request from the EU asset management
industry, as well as the mutual recognition of prospectuses in particular in cases
of public offers of securities and for the listing of securities in a stock exchange;

c. The exemption from the application of detailed US regulations and jurisdiction to
trade in securities by US residents in non-US securities markets;

d. An additional relaxation of rules restricting EU financial conglomerates from
having banking and non-banking financial subsidiaries in the US, for instance to
avoid cases where the affiliation under a single holding company of a bank and
an insurance company may lead to compulsory divestment of either the banking
or the insurance operations in the US;

e. Further regulatory cooperation on payment systems with a view of establishing a
transatlantic payment instrument.

f. There is scope for strengthening the process of co-operation and exchange of
information between supervisory authorities, for instance regarding the
consolidated supervision of financial groups

_11._ _GOVERNMENT PROCUREMENT_

Procurement accounts for between 10 and 15% of combined GDP and any serious
effort to create an NTMA should therefore address this sector. The inclusion of
government procurement in the NTMA should result in the extension of full national
treatment between the parties.

The NTMA provides an opportunity to completely liberalise the two respective public
procurement markets in a way which is fully consistent with WTO rules, without
creating new trade obstacles to third countries. The NTMA should go beyond what is

_**li**_

laid down in the Government Procurement Agreement (GPA) in order to extend
market access. It should not be necessary to impose common detailed procedural rules
as existing national rules provide for the necessary levels of transparency and legal
recourse in procurement once extended to the other party.

For the EU, at "above threshold" [2] levels, this would not present specific difficulties as
the market is already open. At "below threshold" levels, it would suffice for the EU to
commit itself to an exchange of national treatment and a guarantee of fair and
transparent treatment of all suppliers and service providers from both parties. For the
US, it would require, _de_ _jure,_ disapplying all federal "Buy American" preferences for
EU goods, and extending exemptions for SMEs and minority enterprises to cover EU
companies.

Access to US electronic procurement systems (by which a large majority of SME
preferences in particular are operated) and the application of preferences at sub-federal
level would also need to be addressed. In addition, the question of the interpretation of
the application of the security exception in defence-related procurement could be
addressed to ensure an even-handed approach.

In particular, the NTMA should address the following:

a. eliminating exceptions from national treatment in areas, already covered by
commitments under the WTO Agreement on Government Procurement and the
EC-US agreement of 1995. [3 ]

b. completing geographic and entity coverage. [4 ]

c. elimination of existing sanctions. [5 ]

_**12.**_ _**INTELLECTUAL PROPERTY**_

In the area of _patents,_ the US is the only country in the world which continues to use
the anachronistic first-to-invent system. The rest of the world follows the first-to-file
approach. It is obvious that a system which relies on the uncertain moment of the
invention is extremely demanding in terms of evidence for all inventive activities and
creates the potential for extensive and highly costly litigation. Furthermore, the
coexistence of different systems leads to interface problems. The issue has been
discussed for many years. Its importance is highlighted by the fact that it has figured
for years on top of the TABD agenda and that the TABD has recommended a change

2 The EC Directives apply to procurement contracts which have a value higher than the threshold set
out in the Directives. Below threshold procurement is regulated by member states.
3 US exemptions include a number of Buy American and related requirements, local preferences
applied at both federal and sub-federal level, and small and minority set-asides. The US also maintains
a cargo preference - an obligation to use US flag vessels when importing certain products procured by
US.
4 At present only 39 out of 50 States and 5 out of 24 large cities are covered.
5 In May 1993, US imposed sanctions on the EC under Title VII for discriminating against US telecom
equipment businesses. EC imposed equivalent countermeasures. Both remain in force and are
counterproductive to Transatlantic business.

to adopt the first-to-file approach in the US. No progress has been achieved up to

now.

As recommended by the TABD, measures should be taken to significantly reduce the
high costs of obtaining and enforcing patents. The problem of high litigation costs is
of a general nature in the US, but turns out to be particularly burdensome in the area
of patents, mainly because of extensive pre-trial discovery procedures and, to some
extent, the trial of patent cases before a jury. Alternative ways of settling disputes
should be examined, without changing the system as such. An estimate or study on
litigation costs should be carried out, since it is difficult at present to quantify costs in
absolute figures in the absence of systematic, reliable and mutually agreed statistics.
Based on the results of such a study, the objective should subsequently consist of
progressively reducing the costs.

Today, if an inventor applies for a patent at the European Patent Office (EPO) and the
US Patent and Trademark Office (USPTO), such patent applications concerning the
same invention are completely examined by both offices. This implies that full search
reports to find out the relevant state of the art are made twice, with the associated
costs for the applicants. Discussions have already been initiated among the offices
concerned to improve the exchange of information on technical matters related to
patents. Contacts should be intensified to reach some degree of acceptance or even
mutual recognition of parts of the patent procedures, such as search reports.

A number of shortcomings exist in the area of _government use_ without the consent of
the rightholder, which, in practice, is similar to compulsory licences. While some
issues were already addressed in the Uruguay Round, others are still waiting for a
satisfactory solution. The aim should be to proceed as for any other compulsory
licence. A full patent search should be carried out and the patent holder be informed
prior to any government use, except in cases of national emergency. Such use should
only be permitted after efforts by the government to obtain authorisation from the
rightholder on reasonable commercial terms have not been successful, within a
reasonable period of time.

The limitations of the _internet domain_ _name_ _system_ are giving rise to legal battles
involving national right holders sharing the same trademark. Companies are rapidly
becoming aware of the great value of easily memorable internet domain names.
Trademarks are territorial, yet names registered under the domain name system are
both unique and international. In this context, trademark holders should be provided
with the same rights and dispute settlement mechanisms as they have in the physical
world. Questions of competent jurisdiction should also be addressed.

In the area of _geographical_ _indications,_ it would be desirable either to eliminate
altogether or, at least, to reduce the number of indications, which US producers can
continue to use under the grandfather/generic use provisions of TRIPs (Article 24 par.
4 and 6), such as, for example, Vermouth, Chablis, Champagne, Chianti, Porto or
Sherry. This would contribute to considerably improving the situation of EC
rightholders. Bilateral negotiations are underway, but progress is extremely slow.

The legal _protection_ _of_ _databases_ requiring substantial investment is currently the
subject of multilateral negotiations in WIPO. The Berne Convention and TRIPs
provide copyright protection for creative databases, but not as regards databases
which are not « original » in the copyright sense. The EU and the US should continue
their bilateral dialogue in order to agree on a common approach to the WIPO
negotiations, securing a mutually acceptable outcome at the multilateral level as the
ultimate goal. Community legislation already offers a higher level of protection. [6] It
also provides for the possibility of concluding bilateral agreements on a reciprocal
basis with countries offering a comparable protection to EU database makers. [7] The
fulfilment of this condition by the US through the adoption of legislation by Congress
would lay down the basis for the conclusion of a bilateral agreement, securing a
higher level of protection for EU database makers in the US.

There is scope to improve the _protection_ _of_ _textile and clothing_ _designs._ The objective
should consist of reviewing existing unsatisfactory procedures to ensure a higher level
of protection through easy, cheap and short procedures. So far, designs are protected
by copyright law, offering an easy access to protection, but making litigation more
difficult. Design patents grant better protection, but are less attractive from an
economic point of view, since they imply considerable costs and are time-consuming.
The details for a concrete proposal still have to be elaborated, depending on the
precise definition of interests by EU industry.

On _artists '_ _resale rights_ (droit de suite) the Community should continue its regular
contacts with the US Administration with a view to reinforcing this right in the
multilateral framework of WIPO. Following the future adoption of a Community
Directive harmonising the artists' resale right, the adoption by the US of an equivalent
system would further the establishment of free trade in relation to the twentieth
century art market.

Finally, taking into account the sensitivity of the subject matter concerned, any
broadening of the scope of possible negotiation in the area of intellectual and
industrial property rights would require further reflection.

_13._ _INVESTMENT_

On investment it is important to maintain an ambitious approach to develop a
Multilateral Agreement on Investment (MAI) whose key features are MFN and
national treatment. This agreement would cover market access and protection for
investment in both goods and services, as well as for financial assets. As things stand,
it would not provide, for preferential "treatment" within free trade areas (as mentioned
earlier the interface between a FTA in services and the MAI would thus need to be
explored). At the end of that negotiating process, an evaluation should be made of
what has been achieved and of what more might be done with the US.

6 EU database makers are guaranteed a sui generis protection under Article 7 of Directive 96/9/EC of
11 March 1996 which had to be implemented by 1 January 1998.
7 See Article 11 par. 3 in conjunction with recital 56 of the Directive.

## **_u_**

For example, this might include:

a. a strong investor-to-state and state-to-state dispute settlement procedure, which is
the backbone of every bilateral investment treaty.
b. improved national treatment (e.g. in-state treatment and access to publicly funded
research and development programmes).
c. the so-called new issues (such as temporary entry, stay and work of investors and
key personnel, senior management and boards of directors, employment
requirements, performance requirements, privatisations, investment incentives and
corporate practices).

_**14.**_ _**OTHER POSSIBLE COMPONENTS**_

**i)** **Trade and labour**

The adoption of core labour standards throughout the world is a shared priority. As a
minimum, the EU and US should implement fully the existing ILO conventions in our
respective legal systems. In addition as part of the NTM there should be further
dialogue between our social partners and greater co-ordination with a view to
adopting a common position in discussions on these issues in all multilateral fora.

**ii)** **SMEs and Enterprise Policy**

In the context of the New Transatlantic Marketplace we should promote mutually
beneficial partnership activities based on practical initiatives with emphasis in fields
such as improving business environment, access to risk capital, enhance
entrepreneurship, access to innovation and training and benefiting from trade
liberalisation opportunities.

**iii)** **Electronic Commerce**

The NTMA should pay particular attention to the liberalisation of cross-border
services when they are provided by electronic means. International trade in electronic
commerce raises a number of questions that, to some extent, go beyond those which
in the past have been given more relevance in the context of "traditional" trade in
services. Traditionally, liberalisation of services has put great emphasis on the market
access of economic operators and on national treatment. Electronic commerce
requires to go a step further and to place the emphasis on the need for free circulation
of services.

Electronic commerce may in many instances not only consist in the provision of
services across borders but also in the simultaneous provisions of such services to a
number of different countries. Thus, the electronic provision of one single service
will have to comply with a multitude of national regulatory standards. As a result, we
can expect that the major trade obstacles that electronic commerce will face are those
resulting from regulatory divergences and from legal uncertainty. These obstacles are

not 'per se' discriminatory and therefore the problems they create may not just be
solved by the application of the national treatment obligation.

If the NTMA is to effectively liberalise services provided electronically, it will have
to consider (beyond the opportunities already provided by the GATS) the need for
mutual recognition of regulatory standards and, in certain cases, for harmonisation of
legislation. In addition, the NTMA would have to consider ways to improve the
transparency and legal predictability of the rules applicable to electronic commerce.

There is a need to extend discussion on the different aspects of electronic commerce
to all regions of the world and in a multilateral context, in order to co-ordinate and
strengthen the activities of the various international fora and to involve as many
countries as possible as well as the private sector. The Commission recently proposed
the creation of an 'International Charter on Global Communications'. [8 ]

**iv)** **Data Protection**

In the Joint EU-US statement on Electronic Commerce of 5 December 1997, both
sides have recognised that the effective protection of privacy with regard to the
processing of personal data on global information networks needs to be ensured.

In the EU the privacy of individual as regards the processing of their personal data
and the free flow of such data is secured by the Data Protection Directive. The
Directive requires _inter alia_ that Member States shall only allow personal data to be
transferred to third countries where its adequate protection is ensured. In order to
avoid existing differences in levels of protections causing disruption to the free flow
of personal data, it would be desirable to agree to substantive provision as to the
nature of guarantees necessary to secure an adequate level of protection.

v) **Competition**

With regard to the possible inclusion of competition policy in the NTMA, a
distinction must be made between anti-trust and state aid.

On anti-trust, EU and US have successfully developed co-operation in the framework
of the bilateral agreement on competition policy of 1991. In 1998, this bilateral cooperation will be strengthened by the conclusion of the EU-US agreement on the
application of positive comity in the enforcement of competition law. EU-US cooperation on anti-trust matters will be further developed at its own pace and on its
own merits, outside the scope of the NTMA.

Regarding state aid, the US has no control and authorisation procedures similar to the
ones provided for by Articles 92-94 EU Treaty. The Commission should examine
before the NTMA negotiation whether there is a need to negotiate disciplines on state
aid as an element in avoiding distortions of competition.

8 Communication from the Commission of 4 February 1998 on 'Globalisation and the Information
Society - The Need for Strengthened International Co-ordination', COM 98(50) final.

**?£**

**vi)** **Taxation**

Given the growing influence of preferential tax regimes on the location of capital, the
EU and US should address the issue of harmful tax competition. EU Ministers have
given a strong signal of determination to tackle this, both within the EU and beyond,
in the agreement of 1 December 1997. This includes in particular a code of conduct
on business taxation and action to ensure a minimum of effective taxation of savings
income. In both cases Member States have undertaken to promote the establishment
of equivalent measures in third countries.

E. **OTHER ASPECTS** **OF** **THE INITIATIVE**

_**15.**_ _**IMPLICATIONS FOR EU COMMON POLICIES**_

As regards the _Common Commercial Policy_ the NTMA does not envisage the
preferential removal of tariffs. It could instead result in the total elimination on a
MFN basis of industrial tariffs, if sufficient reciprocity from third countries were
forthcoming. The NTMA is aimed at reducing costs for businesses, facilitating trade,
increasing market opportunities and improving economic efficiency. In this respect it
is fully consistent with the general goals of the EU _Industry Policy_ as contained in
Art. 130 of the EC Treaty.

In the area of _trade in goods,_ the main policy concerned is the _Internal Market,_ in
particular as regards the free movement of goods. EU policy in this area is based on
the strict limitation imposed by the Treaty in Articles 30-36/EC on the scope for
Member States to restrict the free movement of goods. Such restrictions, as interpreted
by the case law of the European Court of Justice, are confined to a list of imperative
requirements (such as public health, safety, consumer protection and the environment)
and are subject to restrictive conditions (such as proportionality). Where Member
States impose technical requirements in accordance with these principles, free
movement of goods is maintained by the mutual recognition of laws, supported if
necessary by approximation of these laws at Union level. This means that a product
legally placed on the market of one Member State should be accepted on the market
of another, without having to meet further requirements. There are a number of
mechanisms aimed at preventing the emergence of new barriers, such as the
Information Directive 83/189 and Council Decision 3052/95. In the light of the
importance that the EU attaches to the Internal Market and to its progressive
introduction in the CEECs (Central and Eastern European countries), any external
initiative needs to be compatible with those objectives.

This is not a proposal to extend the Internal Market to the US. However, the
principles of convergence and of mutual recognition of law, procedure and practice,
set out in this Communication as the means to reach the Union's objective of freeing
Transatlantic trade in goods from technical barriers draw upon elements of the
Internal Market approach. The process of convergence is likely to require some
change in EU law, procedure or practice. The same would obviously apply on the US
side.

**2?**

Bilateral convergence should be pursued in close connection with wider international
co-operation, in line with long-standing EU policy and the recommendations of the
WTO-TBT (Technical Barriers to Trade) Agreement. Insofar as the development of
international standards would be involved, mainly in the International Standards
Organisation (ISO) and the International Electrotechnical Commission (IEC), the
necessary arrangements are in place for their adoption by the European
standardisation bodies CEN (Comité Européen de Normalisation), CENELEC
(Comité Européen de Normalisation Electrotechnique) and ETSI (European
Telecommunications Standards Institute). Overall, therefore, the results of agreeing
international standards under the New Transatlantic Marketplace should be
manageable within the existing structures.

As far as mutual recognition is concerned, a Mutual Recognition Agreement (MRA),
covering a number of industrial sectors, was initialled between the EU and the US in
1997 and is scheduled to be formally concluded and implemented in 1998. This MRA
only concerns mutual recognition of conformity assessments and provides for goods
produced on one side of the Atlantic to be tested and certified there, to the technical
requirements of the other side. Implementation and enforcement of this Agreement
will necessitate close co-operation with the Member States' authorities. The legal
relationship between the MRA and an NTMA will need to be clarified.

In general terms (and more in particular where more than just conformity assessments
are concerned) mutual recognition of law, procedure and practice will require close
scrutiny of the regulatory approach followed on either side of the Atlantic, taking full
account of public policy objectives. The impact of any differences of approach in this
respect between the EU and the US (for instance as regards the use of preventive
requirements, compared with resort to producer's liability) will need to be considered.
The objective of this will be to maintain public confidence that the requirements of
protection of health, safety, the consumer and the environment, which are at the
foundation of the Internal Market, are not impaired.

In the area of _trade in services,_ the NTMA should focus firstly on liberalisation based
on national treatment and - unlike in the case of the Internal Market - the application
of host country rules, and on the elimination of restrictions to market access. This
will imply that within the EU, as of course within the US, remaining restrictions on
the right of establishment in any form of commercial presence (subsidiaries, branches,
representative offices, etc.) will have to be eliminated in full conformity with GATS
rules.

The NTMA would not alter the rules governing the functioning of the Internal
Market, nor imply its extension to the US. US firms will benefit from the Internal
Market rights only once they meet the non-discriminatory criteria established by the
EC directives (applicable in the same way to EC companies), except in those cases
where under the NTMA we voluntarily agreed to mutual recognition or
harmonisation. Third countries companies, once incorporated in Europe, already
enjoy the benefits of the single market. The general principle that the benefits of the

## **_n_**

internal market are limited to institutions incorporated in the EU and subject to
harmonised internal market rules would not be altered.

While US companies wishing to enter the EU market would find it easier, they would
still need to comply with the rules prevailing in the Internal Market which have to be
followed by every company wishing to operate in the EU (and which could
progressively approximate in some areas thanks to regulatory co-operation in the
NTMA framework). They would also need to comply with rules applicable in each
Member State where no harmonised regulations at Community level exist. The full
respect of the public policy objectives pursued by Internal Market regulations and
national legislation would therefore be preserved.

Progress in the area of _Mutual Recognition_ (of qualifications, regulations and other
requirements, supervisory practices, etc.) could result in partially granting benefits
allowed under the Market to US companies and service providers without the need to
be subject to the relevant EU rules, but with the equivalent US regulations. This
would need to be done in such a way that neither imbalances the Internal Market nor
distorts conditions of competition. In exchange, EU companies would get equivalent
access to the US market.

This means that, as the functioning of the Internal Market would not be altered,
implications for EU common policies would mainly consist of what could flow from
increased competition in the EU market in the different services sectors, and of the
need to take advantage of increased market access opportunities for EU companies in
the US.

_**16.**_ _**INSTITUTIONAL ASPECTS**_

**Institutional structure**

In order to ensure the effective realisation of the NTM and its proper functioning, and
taking into account the need to preserve the EU's internal procedures, it will be
necessary to create some new institutional structures. What exactly these should be
will become clearer as the negotiation progresses. Their articulation with existing
NTA structures and other existing EU-US arrangements will need to be carefully
considered. It may be appropriate to establish:

- a joint committee structure (either building on existing structures, or adapting
them) which would oversee the implementation of the Agreement;

- a mechanism for the efficient settlement of disputes;

- a consultative body bringing together EU and US parliamentarians.

**Scientific Cooperation**

It may also be appropriate to establish a scientific consultative body, involving the
widest possible exchange of scientific knowledge in the regulatory process, in
particular, by bringing together scientists from both sides of the Atlantic.

### **_»1_**

**The prevention of disputes**

One aim of the NTM is to prevent trade disputes arising. The Joint Committee would
play an important role here. At a minimum, dispute prevention should be based on:

- clarity of the parties'legal obligations under the Agreement;

- fostering public transparency and support through a structured dialogue, or
separate dialogues among interested parties (including consumers, labour and
business);

- reliance on voluntary standards whenever this is possible without compromising
public policy concerns;

- increased regulatory cooperation through notification and consultation procedures
between the parties' public authorities at all appropriate levels when new laws or
regulations are being considered;

- day-to-day administrative co-operation between enforcement and supervisory or
monitoring authorities on both sides of the Atlantic.

**Domestic implementation of commitments**

The benefits of the NTMA for EU and US citizens and firms rest on effective
implementation by the parties in their respective legal orders of the commitments
undertaken in the Agreement. In turn, these domestic law obligations will be
enforceable by each party's jurisdiction.

**The resolution of disputes arising under the agreement**

In the event of disputes between the parties arising nevertheless, in spite of the
bilateral and domestic mechanisms described above, there would be a need for an
effective bilateral mechanism for resolving such disputes. While the precise
institutional nature of such a mechanism would inevitably depend on the kind of
obligations it would eventually have to deal with, it should at a minimum:

- not foreclose the possibility of a consensus-based resolution of the dispute;

- be based on objective elements;

- provide legal certainty to the parties (and ultimately to their citizens and firms) as
to the extent and content of the rights and obligations under the Agreement;

- be carried out within a reasonably short time-span so as to enhance such legal
certainty;

- provide assurances that the outcome will be accepted and enforced by the parties.

**Relationship with WTO dispute settlement**

The above mechanism should be structured in a way which ensures the continued
integrity and effectiveness of the WTO dispute settlement mechanism. Nor should it
in any way curtail the right of the parties to resort to WTO dispute settlement. The
exact relationship between the two mechanisms will depend largely (albeit not
exclusively) on the relationship between the substantive rights and obligations for the
parties under the WTO and the NTMA respectively.

F. CONCLUSION

The Commission requests the Council to proceed to an early in depth discussion of
this proposal.

The Commission will submit draft negotiating directives to the Council for a New
Transatlantic Marketplace Agreement covering the elements described above.

**"31**

###### **Annex**

_**KEY ECONOMIC FIGURES**_

From an economic viewpoint, the Transatlantic partners enjoy a high degree of
integration. The EU and the US are each other's single largest trading partner (taking
goods and services together), and each other's most important source and destination
for foreign direct investment (FDI). Their economic relationship is characterised by a
high degree of intra-industry, intra-firm trade and trade in intermediate products.
Transatlantic firms are increasingly using new and innovative ways of doing business,
including by means of electronic commerce.

In 1996 _two way trade in goods and services_ amounted to more than 355 bn ECUs.
The EU and the US each account for around 19% of each other's total trade in goods
which in 1996 amounted to 227 bn ECUs. The trade relationship is not only large in
size, but it is also substantially balanced. Transatlantic trade is concentrated in
sophisticated high-téchnology products. It is estimated that the latter products
account for 20% of total EU-US merchandise trade.

The area of _trade in services_ appears particularly dynamic. Transatlantic trade in
services figures show that while in 1985 EU-US bilateral trade in services accounted
for 32% of total bilateral trade, by 1995 this figure had risen to over 38% of total
bilateral trade. In 1996 the combined cross-border trade in services reached 128 bn

ECUs. This remarkable increase still leaves considerable scope for trade growth
given the fact that thé services sector has become the largest and fastest growing part
of both economies. In fact, services currently account for more than 66% of total
value added in the EU economies on average, and more than 70% in the US, and for
comparable shares of employment. In comparison, the share of services in world
production amounts to above 50%. As a consequence, the EU and the US are the
world leaders in services trade, accounting for 47% of world exports in services.

The importance of the _EU-US investment relationship_ is demonstrated by the level of
FDI stocks, with each of the two sides being the other's largest investor. By 1996
cross investment stocks between the EU and the US on a historical-cost basis reached

720 bn USD, by far the largest investment relationship in the world. EU investment
in the US was valued 372 bn USD and the US investment position in the EU was
estimated to reach 348 bn USD. The EU therefore is by far the biggest investor in the
US accounting for 59% of total FDI stock by 1996. At the same time 44% of US FDI
stock was located in the EU. As with the bilateral trade relationship, investment
stocks are both balanced and substantial. They have also been growing very quickly
over the past few years, doubling between 1989 and 1996. The service sector plays an
increasing role as destination of FDI, with a yearly average share of cross border
investment flows in services of total FDI in the period 1992-1995 close to 50%,
although the main beneficiary of EU investment in the US is still the manufacturing

sector.

##### ISSN 0254-1475

#### COM(98) 125 final

# **DOCUMENTS**

##### EN 06 11 10 09 Catalogue number : CB-CO-98-173-EN-C ISBN 92-78-32309-8

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