TRADE POLICY REVIEW EUROPEAN UNION Report by the Secretariat by cdm14027

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 WORLD TRADE                                                               WT/TPR/S/102
                                                                           26 June 2002
 ORGANIZATION
                                                                           (02-3443)

 Trade Policy Review Body




                         TRADE POLICY REVIEW

                               EUROPEAN UNION

                            Report by the Secretariat



         This report, prepared for the sixth Trade Policy Review of the European Union,
         has been drawn up by the WTO Secretariat on its own responsibility. The
         Secretariat has, as required by the Agreement establishing the Trade Policy
         Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
         World Trade Organization), sought clarification from the European Commission
         on the EU's trade policies and practices.

         Any technical questions arising from this report may be addressed to Mr. Willy
         Alfaro (tel. 022-739 53 72).

         Document WT/TPR/G/1 02 contains the policy statement submitted by the
         European Commission.




Note:   This report is subject to restricted circulation and press embargo until the end of the meeting
        of the Trade Policy Review Body on the European Union.
European Union                                                           WT/TPR/S/102
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                                              CONTENTS
                                                                                  Page

SUMMARY OBSERVATIONS                                                                 vii
       (1)       RECENT ECONOMIC DEVELOPMENTS                                        vii
       (2)       POLICY DEVELOPMENTS                                                 viii
       (3)       INSTITUTIONAL DEVELOPMENTS                                              ix
       (4)       EXTERNAL T RADE R ELATIONS                                              ix
                 (i)    WTO                                                              ix
                 (ii)   Preferential trade agreements and arrangements                   ix
       (5)       TRADE POLICY M EASURES                                                  x
       (6)       MEASURES A FFECTING PRODUCTION AND TRADE                            xii
                 (i)   Company law                                                   xii
                 (ii)  Competition policy                                            xii
                 (iii) Subsidies                                                     xiii
                 (iv)  Intellectual property rights                                  xiii
       (7)       DEVELOPMENTS IN S ELECTED SECTORS                                   xiii
                 (i)    Agriculture                                                  xiii
                 (ii)   Fisheries                                                    xiv
                 (iii)  Financial services                                           xiv
                 (iv)   Telecommunications and information society                   xiv
I.     ECONOMIC ENVIRONMENT                                                              1
       (1)       MAIN C HARACTERISTICS                                                   1
       (2)       RECENT ECONOMIC DEVELOPMENTS                                            2
       (3)       POLICY DEVELOPMENTS                                                     3
                 (i)     Objectives of economic policy                                   3
                 (ii)    Economic and monetary union (EMU)                               4
                 (iii)   Public finances                                                 6
                 (iv)    Structural reforms                                              7
       (4)       DEVELOPMENTS IN T RADE                                              10
                 (i)    Merchandise trade                                            10
                 (ii)   Commercial services trade                                    11
       (5)       OUTLOOK                                                             12
II.    TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES                                 13
       (5)       GENERAL FRAMEWORK                                                   13
                 (i)   Overview                                                      13
                 (ii)  Institutional framework                                       13
                 (iii) Transparency and public consultations                         14
       (2)       ENLARGEMENT                                                         15
       (3)       COMMON COMMERCIAL P OLICY                                           16
                 (i)   Objectives                                                    16
                 (ii)  Framework                                                     16
                 (iii) Instruments                                                   17
       (4)       EXTERNAL T RADE R ELATIONS                                          19
                 (i)    WTO                                                          19
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                                                                                                            Page
               (ii)     Regional trade agreements                                                             21
               (iii)    Preferential trade agreements and arrangements                                        24

III.   TRADE POLICIES AND PRACTICES BY MEASURE                                                                26
       (1)     MEASURES DIRECTLY AFFECTING IMPORTS                                                            26
               (i)    Customs procedures                                                                      26
               (ii)   Customs valuation                                                                       28
               (iii)  Rules of origin                                                                         28
               (iv)   Community tariff                                                                        29
               (v)    Indirect taxes                                                                          30
               (vi)   Prohibitions, restrictions, surveillance, and licensing requirements                    31
               (vii)  Safeguard measures                                                                      36
               (viii) Product regulations and standards                                                       37
               (ix)   Government procurement                                                                  46
               (x)    State-trading (as defined in GATT Article XVII)                                         48
               (xi)   Anti-dumping and countervailing measures                                                48
       (2)     MEASURES DIRECTLY AFFECTING EXPORTS                                                            50
               (i)    Procedures                                                                              50
               (ii)   Prohibitions, restrictions and licensing                                                50
               (iii)  Duties                                                                                  51
               (iv)   Export subsidies                                                                        51
               (v)    Export assistance                                                                       51
               (vi)   State-trading enterprises                                                               51
       (3)     MEASURES DIRECTLY AFFECTING P RODUCTION AND TRADE                                              52
               (i)    Legal framework for businesses                                                          52
               (ii)   Competition policy                                                                      54
               (iii)  Subsidies                                                                               59
               (iv)   Intellectual property rights protection                                                 63

IV.    DEVELOPMENTS IN SELECTED SECTORS                                                                       69
       (1)     AGRICULTURE                                                                                    69
               (i)    Main characteristics                                                                    69
               (ii)   Common Agricultural Policy (CAP)                                                        70
               (iii)  Developments in selected sectors                                                        73
       (2)     FISHERIES                                                                                      77
               (i)      Main characteristics                                                                  77
               (ii)     Common Fisheries Policy (CFP)                                                         78
       (3)     FINANCIAL S ERVICES                                                                            83
               (i)    Main characteristics                                                                    83
               (ii)   Policy developments                                                                     85
       (4)     TELECOMMUNICATIONS                                                                             91
               (i)    Main characteristics                                                                    91
               (ii)   Policy developments                                                                     92
       (5)     E-COMMERCE                                                                                     97
               (i)   Main characteristics                                                                     97
               (ii)  Policy developments                                                                      97
REFERENCES                                                                                                    103

APPENDIX TABLES                                                                                               109
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                                                                                                           Page

                                                   CHARTS

I.      ECONOMIC ENVIRONMENT

I.1     Merchandise trade developments in the EU, 2000-01                                                    10

                                                    TABLES

I.      ECONOMIC ENVIRONMENT

I.1     Major features of the EU and euro area, 2000                                                          1
I.2     Growth in real GDP and expenditure components of EU-15 and euro area, 1998-01                         2
I.3     Internal Market Scoreboard, March 2002                                                                8
I.4     Commercial services exports and imports (extra-EU), 1992-00                                          11
I.5     Spring 2002 forecasts of real GDP growth for the EU and the euro area, 2002 and 2003                 12

III.    TRADE POLICIES AND PRACTICES BY MEASURE

III.1   Seizures of counterfeit and pirated goods in EU Member States, 1999-00                               26
III.2   Applied MFN, tariff 2002                                                                             30
III.3   EC's liberalization of quantitative restrictions on imports of textile and clothing products         34
III.4   WTO notifications of technical regulations by the EU and Member States, 1995-01                      39
III.5   Open procurement indicators, 1995 and 2000                                                           46
III.6   Anti-dumping actions, 1991-01                                                                        49
III.7   Selected innovation indicators, 1997-99                                                              60
III.8   State aid cases, 2000 to January 2002                                                                62
III.9   Patent statistics, 1999-00                                                                           66

IV.     DEVELOPMENTS IN SELECTED SECTORS

IV.1    Selected agricultural statistics for Member States, 2000 and 2001                                    69
IV.2    EAGF Guarantee and Guidance expenditure by Member State, and national expenditure on
        agriculture, 2000                                                                                    71
IV.3    Old and new tariff suspensions and tariff quotas for fishery products                                82
IV.4    Legislative measures of the Financial Services Action Plan adopted between 2000
        and March 2002                                                                                       86
IV.5    Legislative programme of the Financial Services Action Plan, 2002-03                                 87
IV.6    Telecommunication markets in the EU, 2001                                                            91
IV.7    Internet penetration rates, 2001                                                                     92

                                            APPENDIX TABLES

I.      ECONOMIC ENVIRONMENT

AI.1    Merchandise exports (extra-EU trade) by region and country, 1995 and 1998-00                        109
AI.2    Merchandise imports (extra-EU trade) by region and country, 1995 and 1998-00                        110
AI.3    Leading merchandise exports (extra-EU trade) by SITC Rev.3 category, 1997-00                        111
AI.4    Leading merchandise imports (extra-EU trade) by SITC Rev.3 category, 1997-00                        112

II.     TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES

AII.1   Selected most recent WTO documents of the European Communities, 1995 to 9 April 2002                113
AII.2   Regional trade agreements of the European Union, 2002                                               115
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                                                                                                                Page


III.     TRADE POLICIES AND PRACTICES BY MEASURE

AIII.1   Applied MFN tariffs by HS Chapter, 2002                                                                 116
AIII.2   Quantitative restrictions on imports of textile and clothing products after Stage III
         of liberalization, 2002-04                                                                              120

IV.      DEVELOPMENTS IN SELECTED SECTORS

AVI.1    Main indicators of support by commodity, 1986-00                                                        122
AVI.2    Share of telecoms incumbents in call segments, 2001                                                     123
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SUMMARY OBSERVATIONS                              textiles and clothing), proceeding on WTO
                                                  liberalization commitments, and supporting
1.       The European Union (EU) plays a          further      deepening     of      multilateral
vital role in the WTO and its support for the     commitments, while further expanding the
rules-based multilateral trading system is        extensive system of regional trade agreements.
crucial to the ability of the system to deliver
the benefits from trade to all its Members. The   4.       Maintaining a supportive policy
EU’s position as the world’s leading exporter     environment for economic operators has been
of goods and the second-largest importer is       vital to reviving growth prospects of the
testimony both to the importance of trade to      European economy in 2002. Economic growth
the European consumer and producer, and to        in the EU slowed sharply in 2001, with a slight
the significance of the EU as a market for most   contraction in GDP in the final quarter of the
WTO Members, notably developing countries.        year. Growth was 1.7% in 2001 down from
This interdependence is the result of a           3.3% in 2000. The slowdown is attributed by
longstanding commitment to the multilateral       the Commission mainly to a sequence of
trading system, in addition to an extensive       external shocks – higher oil prices, the burst
network of regional trade agreements and          technology bubble, weak external demand,
preferential trade arrangements.                  exacerbated by the shock to confidence of the
                                                  events of 11 September. The Commission’s
2.      The EU was very important in              Spring 2002 forecasts are for a recovery to
building support for the launch of the Doha       develop in the course of the year, due in part
Development Agenda (DDA) in November              to the strengthened economic prospects of the
2001. The EU, together with its trading           United States, the EU’s main external trade
partners, worked to rebuild confidence and        partner. A weaker first half, however, is
cooperation within the WTO. It has also           expected to lead to a decline in the growth rate
sought to improve public understanding of the     recorded for 2002 as a whole, to 1.5%,
WTO through greater transparency and              followed by a rebound to 2.9% in 2003.
interaction with parliamentarians and civil
society representatives.     The continued        5.       Inflation in the EU rose to 2.3% in
commitment of the EU to the WTO and the           2001, from 2.1% in 2000 and 1.2% in 1999.
multilateral trading system will be critical to   Contributing factors in 2000 were higher
the success of the DDA.                           energy prices and the decline of the euro and,
                                                  in early 2001, rising food prices. Price
(1)     R ECENT E CONOMIC D EVELOPMENTS           pressures eased in mid 2001, but higher food
                                                  prices and indirect tax increases lifted
3.     Since its last Trade Policy Review in      inflation in early 2002. Although euro area
mid 2000, the EU has maintained the               inflation in 2001 was above 2%, the medium-
momentum of its internal economic integration     term target set by the European Central Bank
agenda. It has continued to advance towards       (ECB), the Commission expects the target to
the completion of its Internal Market by          be met in Q2 2002.
pursuing product and capital market reform,
has undertaken the final step towards a single    6.      Unemployment rates continued to
currency in the euro area, largely maintained     decline in most Member States in 2001 despite
control of public finances despite lower          slower economic growth. The Commission
economic growth, and has actively enforced        expects a slight rise in unemployment in the
competition policy, to complement Member          EU as a whole in 2002, even as the recovery
State domestic reform.          Trade policy      proceeds, due to the lagged nature of
developments have been supportive of this         employment adjustment to cyclical upturns. A
agenda, by maintaining largely open markets       decline to 7.5% is forecast for 2003.
for non-agricultural products (except for
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7.       Slower economic growth had a              10.      The ECB conducts monetary policy for
marked impact on external trade developments       the euro area with the core objective of price
in 2001. The value of merchandise exports          stability.    After progressively tightening
rose by 4% in 2001, compared with 23% in           monetary policy throughout 2000 in the face of
2000, while imports were 1% lower in value.        persistent inflationary pressures, the ECB
Merchandise exports were estimated at              shifted to a more accommodating stance in
€ 1,051 billion and imports at € 1,020 billion     May 2001 as price pressures eased. After the
in 2001, reducing the EU’s merchandise trade       euro fell below a level that the ECB
deficit to € 45 billion in 2001, from € 91         considered posed a risk to price stability, the
billion in 2000.                                   ECB intervened to support the euro in
                                                                                       -7
                                                   September 2000 in a concerted G action,
(2)     P OLICY DEVELOPMENTS                       and on its own in November 2000. The euro
                                                   has since recovered to about US$0.90, 25%
8.       The strategic goal for the EU for         below its level of 1 January 1999.
2010, set by the Lisbon European Council, is
"to become the most competitive and dynamic        11.      Following the progress made in 2000
knowledge-based economy in the world               by all Member States, towards the goal of
capable of sustainable growth with more and        budgetary balance or surplus, slippage
better jobs and greater social cohesion". The      occurred in 2001 due to the onset of slower
2002 Broad Economic Policy Guidelines              economic growth. Most governments still in
(BEPG) for the EU and the Member States            deficit position anticipated even greater
emphasize safeguarding macroeconomic               difficulty in meeting their deficit targets in
stability by fulfilling pledges for budgetary      2002. To maintain the credibility of the SGP,
balance made in the Stability and Growth Pact      activation of the early warning system was
(SGP), and continued moderation in wage            considered for certain Member States whose
demands. Other objectives include raising          deficits were forecast to be close to the 3%
productivity through product market reform,        "excessive deficit" level, but activation was set
fostering entrepreneurship and the knowledge-      aside following pledges to meet agreed
based economy, and financial market                balanced budget targets by 2004. Pressures
integration. Member States are to reduce           on deficits should ease in 2003 as a result of
labour costs, strengthen incentives for people     the anticipated recovery. Other public finance
to take up work and participate in the labour      concerns are the relatively high levels of
force, and remove barriers to labour mobility.     government debt in certain Member States, as
Sustainable development is to be promoted.         well as the substantial pressure of ageing
                                                   populations on social welfare systems.
9.      The 11 Member States that launched
the euro area on 1 January 1999 were joined        12.     Under EMU, structural reforms have
by Greece on 1 January 2001. Euro                  assumed a greater importance in fostering the
banknotes and coins were put into circulation      conditions for growth, due to the combination
on 1 January 2002, to be used in all               of a strict anti-inflationary monetary policy
transactions. The single currency facilitates      stance and fiscal policy constraints under the
cross-country price comparisons, and thus          SGP. Since the last Review of the EU in mid
strengthens the Internal Market. Non-EU            2000, good progress has been made on
countries also benefit through lower costs for     achieving the goal of fully integrated
international trade transactions. The main         securities markets by 2003 and financial
benefit of Economic and Monetary Union             markets by 2005 under the Financial Services
(EMU), however, is the lasting contribution of     Action Plan (FSAP), and on fostering the
price stability to the foundations for sustained   "information      society"    through    more
economic activity.                                 competitive markets for telecommunications
                                                   services and a new framework for
                                                   e-commerce.
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13.      Progress in other areas of the Internal   during the period under review. The EU
Market has been slower. Political agreement        continues to pursue trade liberalization
was reached at the Barcelona European              through multilateral, regional, and bilateral
Council in March 2002 to open non-household        initiatives. At the multilateral level, the EU
use of electricity and gas to competition as of    played a leading role in building support for
2004, and to ensure cross-border electricity       the launch of the DDA in November 2001. At
interconnectivity of at least 10% of production    the regional level, new trade agreements were
capacity by 2005. On postal services, the          concluded and existing agreements with
scope of business segments reserved to the         candidate countries were deepened. Bilateral
incumbent postal operator is to be reduced in      negotiations on prospective extra-regional
2003 and again in 2006, and a decisive step to     agreements also continued. In addition, a new
full liberalization could take place in 2009.      scheme for the grant of preferences to
                                                   developing countries was adopted, including
(3)     INSTITUTIONAL DEVELOPMENTS                 enhanced preferences for least-developed
                                                   countries.
14.      The Treaty of Nice was agreed in
December 2000, to prepare EU institutions for      (i)     WTO
enlargement in the light of the objective of the
candidates’ participation in the 2004 elections    17.      Notable actions undertaken by the EU
to the European Parliament. Of particular          to build support for the launch of the DDA
significance to the WTO is the exclusive           include: the “Everything-but-arms” (EBA)
Community competence that would apply to           initiative, adopted in March 2001, to expand
negotiations of agreements that concern            market access for least-developed countries
services (with certain exceptions), and the        (LDCs); supporting the resolution of
commercial aspects of intellectual property        implementation-related      concerns;     and
rights upon ratification by all Member States      providing resources for enhanced levels of
of the Treaty of Nice (ten had done so by          trade-related technical assistance, for which
May 2002). To prepare for the next phase of        the EU and Member States are major donors.
work on the EU treaties in 2004, the
Convention on the future of Europe, launched       18.     In addition, the EU continues to be an
in March 2002, is engaged in a deeper and          active participant in all the regular activities
wider debate about the future of the European      of the WTO and periodically notifies its trade
Union.                                             policy developments to the WTO. The EU is
                                                   among the leading users of the dispute
15.     Transparency in the functioning of the     settlement procedures to enforce the
EU has been further enhanced during the            multilateral trade obligations of its trading
period under review by a new policy adopted        partners, and is frequently involved as a
in 2001 to give all persons, regardless of their   respondent. Disputes with the United States
nationality, access to documents of                continue to be the leading category.
Community institutions, subject to limits for
the protection of public and private interests.    (ii)    Preferential trade agreements and
The Commission has made increasing use of                  arrangements
public consultations to provide input into
proposals for Community action, in keeping         19.     The EU grants preferential access to
with the White Paper on European                   most of its trading partners for some or all
Governance.                                        imports: in 2002, nine WTO Members are
                                                   subject to exclusively MFN treatment in all
(4)     E XTERNAL T RADE RELATIONS                 product categories:     Australia; Canada;
                                                   Chinese Taipei; Hong Kong, China; Japan;
16.     The overall objectives of the EU’s         Republic of Korea; New Zealand; Singapore;
trade policies have remained largely the same
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and the United States.       These countries      encourage adherence to core labour standards
accounted for 45.2% of EU’s total                 or to environmental standards.
merchandise imports in 2001. For other
trading partners, the most beneficial treatment   (5)     TRADE P OLICY MEASURES
is granted to LDCs and the Overseas
Countries and Territories (OCT), followed by      24.      The EU market for non-agricultural
the ACP and countries having concluded free-      products (except for textiles and clothing
trade agreements with the EU, and then GSP-       products) continues to be largely open. In
only countries.                                   addition to tariffs, imported products are
                                                  subject to value-added tax (VAT) and excise
20.     The EU expanded its free-trade            duties in the Member State of destination. The
agreement with Switzerland through the            EU has bound 100% of its tariff lines in the
completion of seven bilateral agreements, on      WTO, and tariffs applied on products are
land-based transport, air transport, free         closely aligned to bound levels.
movement of people, agriculture, research,
procurement, and technical barriers to trade,     25.      The overall simple average MFN
which should enter into force in 2002. With       tariff is estimated at 6.4% for 2002. The
the ten candidates from Central and Eastern       simple average applied tariff on non-
Europe (CEEC), protocols on reciprocal tariff     agricultural products is 4.1%, slightly lower
concessions on agricultural products raised       than at the time of the previous Review in mid
the share of CEEC duty-free agricultural          2000, due to tariff reductions for certain
exports to the EU to 75%, and the share of EU     chemicals, textiles, iron and steel products,
duty-free exports of agricultural products to     and toys. The simple average tariff on
the CEEC to 61%.                                  agricultural products is, at 16.1%, about four
                                                  times higher than that on non-agricultural
21.     Free-trade agreements are also being      products, with above average tariffs on
used as an instrument to integrate the Western    products subject to the Common Agricultural
Balkans. Stabilisation and Association (SAA)      Policy (CAP). Evidence of tariff escalation
agreements were concluded with the Former         remains, in particular on processed products.
Yugoslav Republic of Macedonia (FYROM)
and Croatia. Albania and certain countries        26.      Tariffs well above the average also
and territories of the former Yugoslavia –        apply to textiles and clothing products. The
Bosnia -Herzegovina, the Federal Republic of      EU has long maintained restrictions on
Yugoslavia, including Kosovo – remain under       imports of textile and clothing products from a
the regime of Autonomous Trade Measures           number of developing countries and transition
(ATM), which runs until the end of 2005.          economies. Following its WTO commitments,
                                                  the EU integrated a further 18.08% of textiles
22.     Further progress was also made on         and clothing products on 1 January 2002,
the "Euro-Med" agreements to replace non-         bringing to 51.39% the imports integrated into
reciprocal agreements, and advance the goal       GATT 1994 since 1995. It involved the lifting
of a Euro -Med free-trade area by 2010.           of restrictions on 11 product categories,
                                                  accounting for 15% of products restricted in
23.     A new Council Decision on the OCT         1990. To date, the EU has lifted restrictions
association arrangements was adopted in           on 20% of products restricted in 1990, leaving
November 2001 to continue the regime without      the elimination of the remaining 80% of
major modification until the end of 2011. A       restricted imports “back-loaded” for the final
revised GSP scheme applies for 2002-04, with      stage at the end of 2004.
GSP-plus treatment available to LDCs under
the EBA, as well as to countries that combat      27.     As of 1 January 2002, the EU had in
drug production and trafficking, and to           place definitive anti-dumping measures (duties
                                                  and/or undertakings) on 175 product
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categories, down from 192 in 1999. The EU is      proposed regulations are effective. While
the second most frequent user of these            proposed regulations are subject to WTO
measures, behind the United States, but some      notification requirements to allow concerned
40% of the anti-dumping investigations            Members to comment, participation in the
initiated by the EU are terminated without        consultations phase, before the Commission
measures being taken. Products imported           issues the proposal, is also desirable should
from China are the most frequently affected.      resources permit.
The EU also had 16 definitive countervailing
measures in place, up from 6 in 1999, with        30.      To build consumer confidence in food
products from India the most frequently           safety after a number of food scares on the
affected.                                         Community market, the EU adopted a new
                                                  framework for national food law and food
28.     Safeguard action was taken in             safety procedures. Scientific evidence is to
March 2002 on 15 steel products in response       underpin food safety policy, with the
to the United States’ safeguard action on steel   precautionary principle to be used where
imports. Supplementary duties are to be           appropriate. A new European Food Safety
triggered by volumes rising above 2001 levels     Authority (EFSA) was also established to
to prevent diversion of trade from the U.S.       provide scientific advice to the Commission on
market onto the EU market. The Commission         food policy matters, as well as to Member
also proposed the Council agree additional        States should they so request. A number of
duties of between 8% and 100% on imported         Member States have established authorities
products from the United States as                with mandates at national level to ensure
"re-balancing" measures, given the failure of     independent scientific advice. New regulatory
the two parties to agree compensation for the     requirements have also been put into place
Article XIX measure on steel imposed by the       with respect to labelling of food products of all
United States. The EU continues to make           origins to ensure traceability.
frequent use of the special safeguard (SSG)
mechanism under the WTO Agreement on              31.     One area of reported controversy
Agriculture to impose "snap-back" tariffs.        concerns the placement on the EU market of
                                                  genetically modified organisms (GMOs) and
29.     During the period since the last          products that may contain GMOs or GMO
Review in mid 2000, the EU and the Member         derivatives. Although the new legislative
States have put in place new regulations for      framework for authorizations is tighter in a
certain products – notably in relation to the     number of respects, certain Member States
safety of products and the disposal of waste –    remain opposed to placement on the market
requiring economic operators, including those     without comprehensive labelling requirements
outside the EU, to adapt.             Although    on traceability, currently under consideration.
international standards may be used as the        Another area of controversy concerns the ban
basis for regulations, to facilitate trade, the   on the use of hormones as growth promoters,
Commission has stated that "standards cannot      on which the Commission has conducted a risk
replace governmental responsibility to            assessment in recent years. Amendments to
safeguard a high level of protection              the legislation are under consideration to
concerning      health,   safety     and    the   ensure compliance with WTO rulings.
environment". Certain trading partners of the
EU perceive these new product regulations as      32.     A key objective of the EU is to manage
significant trade barriers, and are concerned     waste more effectively, as a result of which
with preserving the viability of the              new requirements on producers have been
international     standard-setting     process.   imposed or are under consideration. The EU
Another concern is ensuring that the              directive on end-of-life vehicles and the
multilateral processes for consultation on        proposed directive on waste electronic and
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electrical equipment (WEEE) depart from the        companies to facilitate their operation.
previous practice of delegating waste              Another significant proposal concerns the use
management to public authorities by                of International Accounting Standards (IAS)
introducing "producer responsibility" for the      by 2005, which will enhance the transparency
treatment, recovery, and disposal of products.     and comparability of financial statements,
This is intended as a financial incentive for      currently subject to national reporting
producers to design their products to facilitate   standards.
waste management, particularly recycling.
Other requirements could also result from the      (ii)    Competition policy
Integrated Product Policy currently under
elaboration.                                       35.      The Commission has continued to
                                                   vigorously enforce the rules on antitrust
33.     The burden of conformity assessment        activities and mergers with a Community
procedures is reduced for certain non-EU           dimension,      to    complement       national
third countries through Mutual Recognition         competition law enforcement. To focus its
Agreements (MRAs).        New MRAs were            efforts on fighting cartels and other serious
recently concluded with Japan and                  infringements of antitrust rules, the
Switzerland, and are already in force with         Commission has proposed a major
Australia, Canada, Israel, New Zealand, and        simplification of the notification requirements
the United States. A similar outcome is            for individual agreements. In 2001, a record
secured for the CEEC under concluded               number of cartel cases were closed, with fines
Protocols to the Europe Agreements on              reaching € 1.8 billion.
Conformity Assessment and Acceptance of
Industrial Products (PECAs). Although a            36.      Merger activity continued to be high.
number of developing countries would also          For mergers of a transnational character, the
benefit from a reduced burden of conformity        Commission has cooperated actively with the
assessment as a result of MRAs, the EU has         competition policy authorities of EEA
established its own criteria for such              members and, on the basis of bilateral
agreements to be concluded.                        agreements, with those in Canada, the United
                                                   States, and the CEEC, to promote convergence
(6)     MEASURES AFFECTING P RODUCTION             of decisions and remedies; an agreement with
        AND TRADE                                  Japan is also expected.          To promote
                                                   convergence on a wider basis, the Commission
(i)     Company law                                played a leading role in the launch of the
                                                   "International Competition Network (ICN)" in
34.     The EU has continued to pursue the         late 2001. The EU has long been an advocate
objective of a more integrated environment for     of a multilateral agreement on competition.
company activity in the EU, currently
segmented into 15 Member State regimes,            37.       A development of major significance
although harmonized in a number of respects        to consumers in the EU, where car price
under Community law. The long-standing             differentials remain high, is the Commission’s
proposal for a European company was                proposed      new     draft    block -exemption
adopted in October 2001, to be in place by         regulation for motor-vehicle distribution and
2004, and will simplify company law                servicing agreements between carmakers and
requirements for enterprises established in at     dealers, to enter into force on 1 October 2002.
least two Member States. Foreign companies         Foreign carmakers that have not established a
will also have this option, under certain          distribution system in the EU will also benefit,
conditions. The Commission plans to propose        as most restrictions on multi-brand sales are
the consolidation of the tax base for European     to be lifted.
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(iii)   Subsidies                                  pursue a WTO dispute settlement proceeding.
                                                   Aid to the coal mining industry will continue
38.     At EU level, funding for the CAP           until 2010. Although most EU mines cannot
continues to represent the single largest          compete with imported coal, the industry that
expenditure; 44% of the total budget of €          remains in four Member States has long been
93 billion in 2000. Structural operations          assisted on social and regional grounds.
account for 35% of the budget, with research
and technological development a distant third.     (iv)    Intellectual property rights

39.      At Member State level, latest available   43.      To strengthen intellectual property
figures show that State aid was € 80 billion in    rights protection, the EU adopted harmonizing
1999, amounting to 1% of the EU's GNP.             directives on resale rights for the author of an
Member States have pledged to reduce levels        original work of art, and copyright and related
of state aid by 2003, and to shift the emphasis    rights for the digital environment. A new
of subsidies from supporting individual            unitary right on a Community design was
companies or sectors towards tackling              created, in addition to the Community trade
horizontal objectives of Community interest,       mark and Community plant variety. No
such as employment, regional development,          agreement has been reached on the
environment and training or research. More         Commission’s proposal to create a unitary
generally, Member States are encouraged to         Community patent (including a centralized
increase public and private investment in          court for its enforcement), due to issues of
R&D to promote a knowledge-based European          translation as well as jurisdiction. Also
economy.                                           outstanding is the proposal to harmonize
                                                   legislation for patents on software (computer-
40.      The Commission has played a               implemented inventions).
supportive role in efforts to advance domestic
reform by vigorously enforcing rules on state      44.      On enforcement, customs authorities
aid to individual enterprises, in particular for   reported an increase of one third in seizures
non-notified aid.        In July 2001, the         from 1999 to 2000 under legislation
Commission launched a large-scale state aid        implementing the TRIPS Agreement at the
investigation into business taxation schemes,      border. The trend continued in 2001 with a
which are said to be less transparent than         further increase of 27% in the number of
other forms of assistance, and raise the           cases. The Commission has attributed the
potential for harmful tax competition.             rising trend to (a) an increased focus of
                                                   customs authorities, better targeting and
41.     Also significant is the Commission’s       sharing of information; and (b) an increase in
decision to firmly abide by state aid rules on     and expanded range of counterfeit and pirated
airline carriers in the aftermath of the events    goods that are traded.           In 2002, the
of 11 September, with the exception of             Commission intends to propose a harmonizing
assistance for supplementary insurance. To         directive on enforcement of IPRs, which is
ensure a more level playing field with non-EU      said to be stricter than the minimum standards
carriers and fill a void in the GATS               required by the TRIPS Agreement.
Agreement, the Commission proposed a new
instrument to react against unfair co mpetition    (7)     DEVELOPMENTS IN SELECTED
from subsidized third-country airlines.                    SECTORS

42.    In certain sectors, the Commission has      (i)     Agriculture
faced greater difficulty. Aid to shipbuilding
was to be discontinued but its prolongation        45.     Since its last Review in mid 2000, the
has been proposed on a "defensive" basis to        EU has implemented the Agenda 2000 reforms
                                                   to the CAP agreed in Berlin in March 1999;
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Page xiv



the opportunity to reform the milk quota or        significant excess capacity as one of the
sugar quota regimes was not seized, with           causes of resource depletion.
extensions adopted instead. Pressures to
adapt the CAP to new requirements are              (iii)   Financial services
arising from enlargement, where the
Commission has proposed a progressive              49.      Completion of the FSAP occupies a
introduction of direct payments.        Other      central role in the Lisbon strategy to lower
pressures to adapt the CAP are arising in the      costs of capital and foster a more
context of the ongoing WTO negotiations on         entrepreneurial culture. Financial market
agriculture, where the EU has submitted a          integration is among the key potential benefits
proposal. Also of potential significance is the    of the euro. Between 2000 and March 2002,
decline in consumer confidence in the CAP          the EU adopted 15 legislative measures,
due to a number of food safety crises, which       including to complete the regulatory
the Community is addressing, notably by a          frameworks for the banking and insurance
new framework for food safety law, as noted        sectors through provisions on reorganization
above.                                             and bankruptcy, money laundering, and
                                                   reducing the cost of cross-border payments in
46.     According to the latest publicly           euros. A new "Lamfalussy" approach to
available OECD figures, support to producers       securities-market legislation was agreed with
declined to € 97.9 billion in 2000 from €          the Council and European Parliament to focus
107.6 billion in 1999, mainly due to world         legislation on core principles and delegate
market prices rising faster than domestic          implementing powers to the European
prices, as well as currency movements, rather      Securities Committee (ES C), chaired by the
than significant changes in policy.                Commission, and advised by a Committee of
                                                   European Securities Regulators (CESR).
(ii)    Fisheries
                                                   50.     A large number of legislative
47.      Since its last Review in mid-2000, the    proposals are under consideration for
EU has been moving towards consideration of        adoption. The Barcelona European Council
possible revisions to the Common Fisheries         agreed in March 2002 that priority attention
Policy (CFP), to apply as from 2003, although      should be given in 2002 by the Council and the
no concrete proposals had been made as o f 1       European Parliament to adoption of the
May 2002. Negotiations on subsidies to             proposed Directives on collateral, market
fisheries are on the DDA.                          abuse, insurance intermediaries, the distance
                                                   marketing of financial services, financial
48.      The Commission’s Green Paper              conglomerates, prospectuses, occupational
issued in 2001 on the operation of the CFP to      pension funds, and the IAS Regulation. The
date notes the difficulty of reconciling           Commission also intends to issue a revised
objectives in the sector – supporting fishing      proposal for a Takeover Bids Directive
activity in regions and areas of the Community     (rejected by the European Parliament in mid
where it is of social and economic importance,     2001).
while attempting to protect increasingly
fragile fishery resources.       A number of       (iv)    Telecommunications and
measures were taken by the Community in                    information society
2000 and 2001 to address fishery conservation
concerns, including lower catches for 2002 to      51.     Fostering the "information society" is
prevent further deterioration of certain stocks.   a central plank of the Lisbon strategy. Under
Reaching political agreement on a new fleet        the eEurope Action Plan, the local loop
management policy has been more difficult,         unbundling (LLU) regulation was in place as
although Commission estimates point to             from January 2001, a revised legislative
                                                   package for electronic communications was
                                                   adopted in February 2002, to be transposed by
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May 2003, and the legislative framework for        networks to guarantee the security of their
e-commerce was substantially advanced to           networks, to ensure the confidentiality of
build trust and confidence in the Internet.        communications and to delete traffic data.
                                                   Under current legislation, transfers of
52.     For the future, the Commission sees        personal data to a non-EU third country are
substantial benefits for the European economy      only permitted when "adequate" protection is
from extensive use by consumers o f high-speed     determined, or under limited conditions. The
Internet connections and wireless 3G               Commission has progressively extended the
technologies. Although the EU is among the         scope for such transfers by recognizing the
world leaders in mobile communications,            adequacy of the data protection regimes of
household use of the Internet lags that of other   Hungarian, Swiss, and U.S. companies
OECD countries, although business use is           participating in the "safe harbour"
comparable. A new eEurope Action Plan for          arrangement, and certain data transfers to
2005 is to be adopted at the Sevilla European      Canada.
Council in June 2002.
                                                   55.      The e-Commerce Directive, which
53.     As from January 2000, all Member           entered into force on 17 January 2002,
States were required to have initiated the         establishes that contracts concluded by
process of LLU to foster infrastructure-based      electronic means are recognized as such, and
competition on the local access network and        legal barriers to their conclusion are removed,
thereby accelerate the supply of broadband         complementing the e-signatures Directive. In
connections. Incumbent telecom operators           addition, a new regulation on jurisdiction and
were required to provide competitors with          the enforcement of judgments in civil and
physical access to local loops, but progress is    commercial matters gives EU consumers the
conceded to have been slow. The new                right to sue foreign Internet providers of goods
electronic communications package contains         and services in the consumers' local court
changes intended to bring about more               rather than in the foreign jurisdiction.
competitive licensing conditions and fee
structures orientated to cover administrative      56.     In February 2002, the EU adopted a
costs. In addition, a progressive alignment        new policy on the value-added taxation of
with competition policy is to be achieved in       electronic deliveries of information society
market segments where effective competition        services (e.g., software, music, video) to
has been achieved.                                 consumers in the EU from service providers
                                                   established outside the EU, which are
54.    A proposed privacy directive is under       currently not assessed VAT.
consideration. It would require providers of
public telecommunication services and
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I.             ECONOMIC ENVIRONMENT

(1)            MAIN C HARACTERISTICS

1.      The 15 Member States of the European Union (EU) cover a land area of 3.2 million km2 and
have a combined population of 377 million (Table I.1). Among the 15, the "euro area" is composed
of 12 Member States - Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Spain, and Portugal. The GDP of the EU was some € 8,500 billion in
2000 (17% of world GDP)1, and per capita income was € 22,520 in 2000. Thirteen countries have
requested accession to the EU (Chapter II(2)); if and when all accede, the EU will gain around 45%
in population, 34% in land area, and 7% in GDP.

Table I.1
Major features of the EU and euro area, 2000

                                   Area         Population                                                  Share in GDP
                                                                       GDP per capita
                                                                                                              (per cent)

                                ('000 km2)       (million)           Euro          PPSa     Agriculture, forestry    Industry   Services
                                                                                            and fishery products

    European Union                3,191           376.5          22,520            22,520           2.0                26.0      72.0
    Euro area                     2,454           302.7          21,530            22,320           2.7                28.8      68.5
    Austria                          84              8.1         25,390            24,710           1.4                32.3      66.3
    Belgium                          31            10.2          23,990            24,900           1.4                24.0      74.7
    Denmark                          43              5.3         32,980            27,070           2.3                22.7      75.0
    Finland                         337              5.2         25,510            23,220           3.1                29.7      67.1
    France                          544            59.3          23,250            22,250           2.6                23.3      74.1
    Germany                         357            82.2          24,750            23,630           1.1                28.0      70.9
    Greece                          132            10.6          11,530            15,270           8.1                23.0      68.9
    Ireland                          70              3.8         27,220            26,640           4.5                40.9      54.6
    Italy                           301            57.7          20,190            22,890           2.6                26.2      71.2
    Luxembourg                         3             0.4         46,370            42,860           0.6                17.8      81.6
    Netherlands                      42            15.9          25,180            26,270           2.6                24.2      73.2
    Portugal                         92            10.0          11,400            16,590           3.3                26.4      70.3
    Spain                           506            39.4          15,360            18,250           3.3                27.6      69.2
    Sweden                          450              8.9         27,800            22,960           1.8                28.8      69.3
    United Kingdom                  244            59.6          25,690            23,340           0.9                25.4      73.7
    Memorandum:
    United States                 9,373           274.0          39,200            35,280           1.4                21.9      76.8
    Japan                           378           126.3          40,610            25,080           1.7                33.0      65.3

a              Euro, measured on the basis of purchasing power standards (PPS).

Source:        European Central Bank (2001b); Eurostat (2001); Eurostat, "Gross Domestic Product 2000", Theme 2 – 24/2001;
               United States Department of Commerce (2001b); WTO (2000b).

2.       Services account for 72% of the EU's GDP, while agriculture, forestry and fishery products
together account for 2%, with the remainder attributed to industry and construction. Agriculture,
forestry and fishery products account for 4.3% of the civilian labour force of the EU, industry and
construction account for 29%, and services for 67%.2


               1
                   Eurostat, "Gross Domestic Product 2000", Theme 2 – 24/2001.
               2
                   OECD (2001c).
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3.       External merchandise exports of US$859 billion in 2000 made the EU the largest entity in
world merchandise exports (17%), and the second largest world importer (18% of world imports),
with US$966 billion of merchandise imports.3 With respect to external (cross-border) trade in
commercial services, the EU had exports of € 291 billion and imports of € 286 billion in 2000.4 The
EU dominated world foreign direct investment outflows (excluding intra-EU flows) in 2000,
accounting for 47% of the total, and attracting 20% of total FDI inflows.5 The EU held € 1,549
billion in foreign direct investment stocks in 2000, about one-half of which are held in the United
States.

(2)           RECENT ECONOMIC D EVELOPMENTS
4.      Since its last Review in mid 2000, the EU has experienced much slower economic growth.
While growth was 3.3% in 2000 compared with 2.5%in 1999 (Table I.2)6, it was down to 1.7% in
2001, according to the Commission's Spring 2002 forecasts.7 Although a contraction occurred in the
last quarter of 2001 (on a quarter-over-quarter basis), a recession (defined as two consecutive quarters
of declining GDP) appears to have been avoided, and forecasts are of a recovery developing in the
course of 2002, and taking hold in 2003 (section (5)).
Table I.2
Growth in real GDP and expenditure components of EU-15 and euro area, 1998-01
(Per cent)
                                                       1998              1999   2000                 2001a
                                                                                       Q1             Q2             Q3

    European Union
    GDP                                                2.9                2.5    3.3   2.3             1.7          1.5
    Domestic demand                                    3.7                3.1    3.0   4.7             2.2          0.0
     Household                                         3.3                3.2    2.7   2.1             2.0          1.9
     Government                                        1.1                1.8    1.9   2.0             1.9          1.9
     Gross fixed capital formation                     5.8                5.2    4.4   1.9             0.3          -1.4
    Exports                                            6.5                4.9   11.3   8.5             4.4          0.1
    Imports                                            9.5                6.8   10.4   7.2             3.3          -1.1
    Euro area
    GDP                                                2.9                2.5    3.3   2.3             1.6          1.4
    Domestic demand                                    3.5                3.1    2.8   1.6             1.0          0.7
     Household                                         3.1                3.0    2.6   1.9             1.8          1.6
     Government                                        1.0                1.5    2.0   2.0             1.9          2.2
     Gross fixed capital formation                     5.1                5.1    4.4   1.6            -0.4          -1.7
    Exports                                            7.1                4.8   11.9   8.6             4.9          0.9
    Imports                                            9.6                6.9   10.1   6.8             3.4          -0.9

a             Year-over-year quarterly growth rates, not seasonally adjusted.

Source:         Eurostat, "Quarterly accounts", Theme 2 – 10/2002.




              3
             WTO (2001), Table I.6.
              4
             Eurostat News Release 117/2001.
           5
                DG       External   Trade     (2001).    "Facts   and    Figures"        [Online].           Available     at:
http://europa.eu.int/comm/trade [7 December 2001].
           6
             Eurostat, "Gross Domestic Product 2000", Theme 2 – 24/2001.
           7
             European Commission News Release IP/02/610.
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5.      The Commission attributes the slower economic growth mainly to external shocks.8 First, the
increase in oil prices in 1999-00 fuelled inflation and dampened consumption as real disposable
income declined, and business confidence was adversely affected. Monetary policy was tightened to
contain inflationary pressures, further dampening consumption and investment. Secondly, the sharp
downward revisions, in the second half of 2000, in valuations of shares of high-technology companies
and enterprises active in the "new economy", starting in the United States, had adverse wealth effects
on consumption and on capital market conditions for affected sectors. Propagation through the
channels of international trade and through integrated financial markets was swift. The events of
11 September 2001 in the United States further undermined consumer and business confidence levels.

6.       Inflation in the EU, measured by the Harmonized Index of Consumer Prices (HICP), rose to
2.1% in 2000, from 1.2% in 1999, and peaked at 3.4% in May 2001.9 Factors boosting inflation in
2000 included, in addition to higher energy prices, the decline of the euro against major currencies
and, in early 2001, rising food prices. Price pressures eased from June 2001, with continuous declines
in the inflation rate thereafter. For 2001 as a whole, inflation was 2.3% in EU-15 and 2.5% in the
euro area, and varied across euro-area Member States from 5.1% in the Netherlands to 1.8% in
France.10 However, in Q1 2001, inflation rose again due to the implementation of indirect tax
increases in a number of Member States and higher food prices due to adverse weather conditions, as
well as the effect of the changeover to the euro.

7.      According to the Commission's Spring 2002 forecasts lower economic growth in 2001 halted
the progress towards lower unemployment rates, continuous since 1996, in Germany, Portugal and
Luxembourg.11 The Commission estimates an unemployment rate of 7.6% in the EU for 2001, and
forecasts a slight rise in 2002 to 7.8%, with a decline to 7.5% in 2003 (section (5)). As noted in the
previous Review of the EU, the speed of employment adjustment in the EU appears asymmetric, with
employment levels adjusting downwards relatively quickly in a downturn but adjustment in the
opposite direction taking longer in an upturn.12

(3)     P OLICY D EVELOPMENTS

(i)     Objectives of economic policy

8.       In addition to the general aims of economic policy13, the Lisbon European Council set a new
strategic goal for the EU for 2010: "to become the most competitive and dynamic knowledge-based
economy in the world capable of sustainable growth with more and better jobs and greater social
cohesion". 14 The Lisbon strategy encompasses policies on higher employment, innovation and
research, economic reform, social cohesion, and sustainable development. The strategy for the EU
and for the Member States to achieve these goals is set out in the Broad Economic Policy Guidelines
(BEPG) adopted annually by the Council. In 2002, the main components were to: safeguard

        8
             DG Economic and Financial Affairs (2001e).
        9
             Eurostat, "Harmonized Indices of Consumer Prices, October 2001", Theme 2 – 39/2001.
           10
              European Commission News Release IP/02/610.
           11
              European Commission News Release IP/02/610.
           12
              WTO (2000a), Vol. 1, p. 4.
           13
               Article 2 of the EC Treaty states these are: "to promote throughout the Community a harmonious,
balanced and sustainable development of economic activities, a high level of employment and social protection,
equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness
and convergence of economic performance, a high level of protection and improvement of the quality of the
environment, the raising of the standard of living and quality of life, and economic and social cohesion and
solidarity among Member States".
           14
                Lisbon European Council, 23-24 March 2000, Presidency Conclusions [Online]. Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [25 November 2001].
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macroeconomic stability; raise labour force participation and employment as well as addressing
persistent unemployment;   strengthen conditions for high productivity growth;   and promote
sustainable development.15

(ii)     Economic and monetary union (EMU) 16

(a)      Transition to the single currency

9.       Eleven Member States were participants in the launch of the euro area on 1 January 1999, and
were joined by Greece on 1 January 2001.17 With respect to other Member States, Denmark’s citizens
rejected participation in a referendum on 28 September 2000, while the Governments of Sweden and
the United Kingdom are considering holding referenda on participation. 18

10.      The introduction of euro banknotes and coins on 1 January 2002 ended the transition process
during which national currencies had co-existed with the euro as "expressions of the same currency". 19
The single currency will enhance the scope for consumers to make price comparisons across markets
and therefore engage in cross-country arbitrage, which complements the Internal Market.20 Costs of
international trade transactions will be reduced, since partners of the EU need no longer operate in 15
separate currencies. These effects are additional to those already identified as being of benefit as a
result of monetary union. 21 The main contribution is, according to the European Central Bank (ECB),
to foster the lasting price stability that contributes to achieving high levels of economic activity and
employment.22 Improved European economic prospects benefit non-EU countries primarily through
the channel of international trade: "a trade creation effect results from the positive impact on
economic growth in the EU that is linked with the completion of EMU". 23

(b)      Monetary policy24

11.      The 12 participants in the euro area have a common monetary policy, exercised by the
independent European Central Bank, which has price stability as its primary objective. The ECB has
three elements in its strategy to achieve this objective: a definition of price stability and two pillars of
monetary policy.25 Price stability has been defined as a year-over-year increase in the Harmonised
Index of Consumer Prices (HICP) of less than 2% for the euro area in the medium-term. The two
pillars of monetary policy are: the quantitative reference value for monetary growth (set at 4.5%
annual growth for M3); and other indicators of potential price developments in the euro area (e.g.,
output developments, nominal wages, energy prices).



         15
               European Commission News Release IP/02/609.
         16
               DG Economic and Financial Affairs (2001a).
            17
                Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
and Spain (Council Decision 98/317/EC), and Greece (Council Decision 2000/427/EC). As a result of the
territorial sovereignty of participants, the euro was also introduced inter alia in the French overseas departments
of Guadeloupe, Martinique, French Guyane and Réunion, in the Azores and Madeira and in the Canary Islands.
            18
                Denmark and the United Kingdom have an opt-out clause for Stage Three of EMU, while Sweden
does not fulfil the convergence criteria.
            19
               DG Economic and Financial Affairs (1996), p. 8.
            20
               Gasoriek et al. (2001) quoted in DG Economic and Financial Affairs (2001c).
            21
               WTO (2000a), Vol. 1, Annex 1.
            22
               ECB (2001b).
            23
               Bekx (1998), p. 2.
            24
               ECB (2001a).
            25
               ECB (2001b).
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12.      During the period under review, the ECB has developed its understanding of the mechanics of
change in the first pillar, making adjustments for holdings of money-market paper and short-term debt
securities by non-residents, which were leading to apparent monetary growth in the euro area
consistently above the quantitative reference value.26 The ECB has also shifted its main instrument of
monetary policy from setting the interest rate for short-term refinancing operations of commercial
banks to announcing the minimum bid rate.27 With regard to the second pillar, the ECB decided to
publish staff projections for the euro area in the interest of greater transparency.

13.       The last Review of the EU, in mid 2000, noted the shift to a less accommodating policy
stance on 4 November 1999, when the ECB raised its interest rate to 3%, to counter an upward trend
in inflation risk amid signs of a strengthening in the euro-area economy. The ECB further raised its
short-term interest rate six times in the course of 2000, reaching a peak of 4.75% on 5 October. This
level was maintained due to the risk of second-round effects on inflation of wages, fiscal policy, and
pass-through of past oil-price increases and exchange rate declines, despite the rapidly weakening
domestic and external environment, until 10 May 2001, when a reduction of 25 basis points was
decided. A further reduction of 25 basis points was decided on 30 August 2001. Following the
events of 11 September in the United States, the ECB again lowered its key interest rate by 50 basis
points, on 17 September, in a concerted action with the Federal Reserve System of the United States.28
The ECB subsequently re-assessed the inflationary risks in the euro area in the face of a period of
slower growth that appeared to be more prolonged than originally anticipated, cutting interest rates
again by 50 basis points on 8 November 2001. The level of 3.25% has subsequently been maintained.

(c)     Exchange rate developments

14.      Euro area participants have a common currency and hence a common exchange rate for other
currencies. (Denmark, which has not adopted the euro, also participates in the exchange rate
mechanism (ERM II), while Sweden and the United Kingdom do not.) At the time of the previous
Review of the EU, the ECB did not exercise an explicit exchange rate policy for the euro.29 The ECB
intervened on exchange markets to support the euro in September 2000 (in concert with the monetary
authorities of the United States, Japan, Canada, and the United Kingdom), and in November 2000,
citing the risks of continued depreciation to the objective of price stability.

15.      Following its introduction on 1 January 1999 at a rate of US$1.17, the euro depreciated
almost continuously. A brief recovery in May and June 2000 was followed by a renewed slide in the
summer of 2000, to below US$0.85, which the ECB considered to pose a risk to price stability. The
euro depreciated further after the intervention of 22 September 2000, reaching US$0.8252 on
26 October 2000, but then recovered after the intervention in early November 2000 to reach US$0.897
at the end of December 2000. In the first part of 2001, the value of the euro was stable in relation to




        26
              ECB Press Conference, 10 May 2001 and ECB Press Conference, 30 August 2001 [Online].
Available at: http://www.ecb.int [4 December 2001].
           27
              On 28 June 2000, the ECB switched from fixed rate tenders to variable rate tenders, announcing in
advance the minimum bid rate.
           28
              Dr. W.F. Duisenberg, "Testimony before the Committee on Economic and Monetary Affairs of the
European Parliament", 12 December 2001 [Online]. Available at: http://www.ecb.int [19 December 2001].
           29
              Although the EC Treaty provides for the possibility of a Council decision on the "general
orientations for exchange-rate policy" for the euro in relation to non-EU currencies, no such decision has been
taken before or during the period under review.
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major c urrencies, but trended down in mid-year, to recover again in the latter part of 2001.30 At the
end of 2001, the euro was about one -quarter lower than the level of 1 January 1999.

(iii)    Public finances

16.     The Commission has noted that "EMU is a unique policy framewo rk in having a centralised
monetary policy framework but decentralised budgetary policies". 31 All Member States (including
those outside the euro area) have agreed to achieve medium-term budgetary positions of "close to
balance or in surplus", to ensure deficits are below the "excessive" level of 3% of GDP (Protocol
No. 20 of the EC Treaty), even in periods of normal cyclical slowdown, when automatic stabilisers
would be in operation. This objective is intended to ensure that the fiscal policy for the euro area is
supportive of the monetary policy of the ECB and confer credibility on the euro. Over the medium-
term, the IMF considers that such fiscal adjustment will place the European economy on a higher
growth path, mainly due to the "crowding-in" effect on private investment.32

17.      Member State commitments are made operational in the Stability and Growth Pact (SGP)33,
and the BEPG. Assisted by the Commission, the Council exercises multilateral surveillance annually
on the "stability" programmes of euro area participants and the "convergence" programmes of other
Member States.34 During the period under review, progress was made by all Member States towards
budgetary balance or surplus in 2000, which was required to be achieved, under the 1999 BEPG, "no
later than by the end of 2002". However, following the onset of slower economic growth in mid
2000, governments still in deficit position have faced increasing difficulty in meeting targets in 2001
and 2002 due to automatically lower tax receipts and higher expenditures. According to the
Commission's Spring 2002 forecasts, the Member States having achieved a position of balance or
surplus in 2001 were Belgium, Denmark, Greece, Spain, Ireland, Luxembourg, the Netherlands,
Austria, Finland, Sweden and the United Kingdom.35

18.     The Council made its first use of the instruments of multilateral surveillance during the period
under review. On 24 January 2001, Ireland was addressed a "recommendation" as its 2001 budgetary
policy was considered to be overly expansionary in the context of intensified domestic inflationary
pressures.36 The Commission reported in October 2001 that much of the inconsistency had
disappeared due to unexpected economic developments, but that fiscal policy for 2002 should remain
geared to stability.37 In early 2002, the Commission recommended the Council issue an "early
warning" to Germany and Portugal.38 In the case of Germany, the deficit for 2001 was estimated at

         30
              ECB, Monthly Bulletin, December 2001, Table 10, p. 68 [Online]. Available at: http://www.ecb.int/
[1 January 2002].
           31
              DG Economic and Financial Affairs (2001d), p. 1.
           32
              IMF (1996).
           33
               The SGP consists of the Resolution of the Amsterdam European Council of 17 June 1997 on
Stability, Growth and Employment, and Council Regulations 1466/97 (early warning system) and 1467/97
(excessive deficit procedure).
           34
               The latest updates pertain to 2002 on which a report was issued in May 2002, after the deadline for
this report.
           35
              European Commission Press Release IP/02/610.
           36
               European Commission Press Release IP/01/105. Article 99.4 of the EC Treaty states: "Where it is
established…that the economic policies of a Member State are not consistent with the broad guidelines…or that
they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting by a
qualified majority on a recommendation from the Commission, make the necessary recommendations to the
Member State concerned."
           37
              European Commission Press Release IP/01/1474.
           38
               Article 6.2 of Council Regulation 1466/97 states: "In the event that the Council identifies significant
divergence of the budgetary position from the medium-term budgetary objective, or the adjustment path towards
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2.6% of GDP and was projected to rise to 2.8% in 2002, close to the "excessive" level of 3% of
GDP.39 Germany and Portugal however pledged to respond to the substance of the Commission’s
concerns, notably by ensuring that the 3% threshold for the deficit would not be breached in 2002, and
close to a balanced position would be achieved by 2004, and the procedure was closed.

19.      Other aspects of public finances of concern in the process of multilateral surveillance include
the relatively high levels of government debt in a number of Member States, notably Greece,
Belgium, and Italy. Another concern is the very high implicit government liabilities in the euro area
due to ageing populations. Long-term trends of fertility, mortality, and international migration have
led to a rapidly declining rate of population growth in the EU, expected to halt population growth by
2025, thereafter declining. 40 As a result, the working age population is expected to shrink rapidly;
between 2000 and 2040, the ratio of seniors to the working age population is expected to about double
to 49%.41 This will create substantial pressure on social welfare systems, leading to new demands on
public finances, pointing to the need to reform these systems, increase employment rates, and sustain
balanced budgets over long periods to reduce government debt levels.

(iv)    Structural reforms

(a)     Overview

20.      Structural reforms have acquired a greater importance in fostering the conditions for growth
under monetary union due to the combination of monetary policy geared to achieving price stability
and constraints imposed on fiscal policy under the SGP.42 The 2002 BEPG emphasizes product
market reform, fostering entrepreneurship and the knowledge-based economy, and financial market
integration, and for Member States to reduce the cost of labour, strengthen incentives for people to
take up work and participate in the labour force, and remove barriers to labour mobility.43

(b)     Internal Market

21.     The Internal Market - intended to achieve the free movement of people, capital, goods and
services - is the main agenda at the EU level for pursuing structural reform, complemented by the
Community’s policy on competition policy and state aids (Chapter III(3)(ii) and (iii)). During the
period under review, progress has been made on achieving fully integrated securities markets by 2003
and fully integrated financial markets by 2005; 25 measures of the original 42 in the Financial
Services Action Plan (FSAP) have been finalized, and a new "Lamfalussy" approach to legislation
agreed (Chapter IV(3)). Progress on more competitive telecoms markets has been made through
adoption of a revised telecoms package in February 2002 (Chapter IV(4)), and the legislative
framework for e -commerce is almost in place (Chapter IV(5)).

22.       Political agreement was reached at the Barcelona European Council in March 2002 to open
non-household use of electricity and gas to competition as of 2004, and to ensure cross-border
electricity interconnectivity of at least 10% of production capacity by 2005; this commitment still has

it, it shall, with a view to giving early warning in order to prevent the occurrence of an excessive deficit,
address, in accordance with Article 103(4) [99.4] a recommendation to the Member State concerned to take the
necessary adjustment measures."
          39
             European Commission Press Release IP/02/610.
          40
              These trends are comparable to those in Japan, while a much higher level of population increase
obtains in the United States. In 1999, the population increase in the EU was 2.6 per 1,000 inhabitants compared
with 9.4 per 1,000 in the United States and 1.9 per 1,000 in Japan.
          41
             DG Economic and Financial Affairs (2001e).
          42
             DG Economic and Financial Affairs (2001a), p. 9.
          43
             European Commission Press Release IP/02/609.
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to be translated into concrete decisions in the Council and European Parliament.44 On postal services,
the Council agreed at the end of 2001 on reducing the scope of business segments reserved to the
incumbent postal operator in 2003 and again in 2006.45 A decisive step to full liberalization could
take place in 2009, contingent on a favourable decision by the Council and European Parliament in
2007, based on a Commission review of the sector focussed on maintaining quality "services of
general interest" in a competitive environment.46

23.       Another dimension of completing the Internal Market is implementation in a timely fashion of
legislation, which currently consists of some 1,800 directives and regulations, the bulk being
directives.47 A target of a 1.5% "transposition deficit" (directives only) had been set for the Barcelona
European Council in March 2002, and was met by seven Member States: Belgium, Denmark,
Finland, the Netherlands, Spain, Sweden, and the United Kingdom. However, 10% of Internal
Market legislation had not been transposed in all the Member States, a fragmentation indicating that
"the Internal Market is still operating at only 90% of its potential". 48 The number of Article 226
infringement proceedings also remains high – 1,500 according to the November 2001 Internal Market
Scoreboard – of which France, Germany, and Italy account for 40%.49
Table I.3
Internal Market Scoreboard, March 2002

                                                                                MEMBERS a

                                B    DK     D      EL      E       F      IR        I       L     NL     A       P     FI    S     UK

    Transposition   deficits   1.5   0.8   2.6     2.6     1.5    3.0     2.1      1.9      2.3   1.5   1.9     2.4    1.3   0.9   1.3
    (%)
    Infringements              128   40    150     125    132     224     122      192      35    59     78     54     27    35    76
    (number)

a            B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy;
             L: Luxembourg; NL: The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom

Source:      Data supplied by the European Commission; and DG Internal Market (2001b).

24.      Despite the establishment of the legislative framework to foster European economic
integration, and the monitoring of its transposition and implementation, the Commission conc edes
that the goal of European economic integration is still to be achieved. While the "law of one price"
states that prices should not differ according to geographical location in an integrated market
(accounting for transport costs), the Commission notes that "price dispersion has proven to be large,
persistent and rather stable over time", indicating the scope that exists for convergence.50 The
Commission has also found that "progress seems to have run out of steam", and notes "the

           44
               Barcelona European Council, 15-16 March 2002, Presidency Conclusions [Online]. Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [25 March 2002]. In March 2001, the Commission proposed full
opening of the gas and electricity markets for all consumers by 2005 and to interconnect national networks
(COM(2001)125, see European Commission Press Release IP/01/356). According to press reports, France and
Germany had resisted full opening of the electricity market, in the case of France, due to opposition from
Electricité de France (EDF), and in the case of Germany, due to opposition to a new regulatory authority
(Financial Times, 20 February 2002).
           45
              European Commission Press Release IP/01/1420.
           46
              See Commission Communication on the subject (OJ C 17, 19/1/2001) and COM(2001)598.
           47
               1,492 directives and 275 regulations. Noting the complexity of the acquis, which spans 80,000 pages
of rules and regulations, the Commission intends to submit a detailed plan of action in May 2002 to reduce by
25% the pages concerned, to further simplify the regulatory environment, building on the SLIM process.
           48
              DG Internal Market (2001b).
           49
              COM(2001)309. See European Commission Press Release IP/01/1604.
           50
              DG Economic and Financial Affairs (2001c).
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conjuncture of a slowing economy with the introduction of the single currency makes it especially
important for the European Union and for Member States to keep to agreed reform timetables". 51

(c)     Labour market reforms

25.      Despite the improvements in employment rates since 1996, the labour force potential of the
EU is generally recognized as being under-utilized. Recognizing that "the employment rate is too low
and is characterised by insufficient participation in the labour market by women and older workers",
the Lisbon European Council agreed the goal of a 70% employment rate by 2010, and a 60% rate for
women, with an interim goal of a 67% employment rate by January 2005, and a 57% rate for women,
set a year later.52

26.      Costs of labour are relatively higher in the EU than in the United States (€ 21.5 per hour in
the EU in 1999, compared with € 17.9 in the United States), and vary significantly across the Member
States (from € 7 in Portugal to € 27.2 in Austria).53 In real terms (adjusted for price and productivity
developments), unit labour costs have fallen slightly more in the EU than in the United States since
1996; within the EU, they have declined the most in Finland, Ireland, and Luxembourg.54 Relatively
rigid labour markets are believed to be the cause of higher structural unemployment and low labour
force participation.55 Although some progress has been made in this respect, the Commission reports
"the pace of labour market reforms seems to have slowed down in 2001". 56

27.      Persistently large differences in employment performance across the regions of the EU, and
within Member States have remained a feature of the period 1996-00, when growth was favourable to
employment creation.57 Certain Member States have relatively low unemployment rates and high
vacancy rates, indicating a mismatch between labour demand and supply.58 Skill bottlenecks and
insufficient language training are barriers to full labour mobility, hindering EU-wide labour markets.59

28.     As part of the European Employment Strategy launched in 1997, the Council agreed in
December 2001 on the employment package, consisting of the Joint Employment Report,
Recommendations on the implementation of Member States’ employment policies, and Employment
Guidelines for 2002.60 The Guidelines are to be translated into the National Action Plans for
Employment (NAPs) by Member States. The employment package notes the need for further efforts
to raise employment rates and maximize labour supply, in keeping with the objectives set at the
Lisbon and Stockholm European Councils, while recognizing the prospect of higher unemployment
due to weaker growth.




        51
              COM(2001)736.
        52
               Stockholm European Council, 23-24 March 2000, Presidency Conclusions [Online]. Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [25 November 2001].
           53
              Eurostat, "EU Labour Costs 1999", Theme 3 – 3/2001.
           54
              Eurostat, "Unit labour costs", General Statistics.
           55
              ECB (2001b), Section 2.2.
           56
              DG Economic and Financial Affairs (2002).
           57
              Eurostat, "Employment in the EU Regions 2000", Theme 3 – 13/2001.
           58
              OECD (2001d).
           59
              European Commission Press Release IP/01/1868.
           60
              European Commission Press Release IP/01/1719.
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(4)       DEVELOPMENTS IN TRADE

(i)       Merchandise trade

29.      The period of slower economic growth since the last Review of the EU in mid 2000 has had a
marked impact on external trade developments in 2001.61 Following the 23% rise in merchandise
exports in 2000, growth decelerated in 2001 to a provisionally estimated 4%, partly due to slower
growth in major trading partners, and notably in the United States (up 3%), the EU’s leading export
destination. Imports fell 1% in 2001, notably from the United States (down 1%) and Japan (down
12%), due to slower domestic demand growth and declining energy imports (in value). On a year-
over-year basis, monthly exports were down 8.9% in December 2001 and imports were down 17.5%
(Chart I.1). For the year 2001, merchandise exports were estimated at € 1,051 billion and imports at
€ 1,020 billion, reducing the EU's merchandise trade deficit to € 45 billion in 2001, from € 91 billion
in 2000.

 Chart I.1
 Merchandise trade developments in the EU, 2000-01

 Year-over-year-change (per cent)
 30

 25
                             Exports
 20
 15
 10
  5

  0
  -5
 -10                                                         Imports

 -15
 -20
       2000-12 2001-1    2001-2   2001-3   2001-4   2001-5   2001-6    2001-7   2001-8   2001-9 2001-10 2001-11 2001-12


 Source: Eurostat, "Exports of goods", and "Imports of goods", Key Indicators [Online]. Available at:
         http://europa.eu.int/comm/eurostat [22 March 2002].


30.      The United States remains the EU’s leading trade partner, accounting for 24.7% of exports in
2000 (Table AI.1), and 19.2% of imports (Table AI.2), about the same as in 1999. The expansion of
merchandise exports in 2000 was balanced across other trading partners and destinations for EU
exports, and was led by a marked increase in exports of machinery and transport equipment (up 24%),
after several years of stagnation (Table AI.3). Within this group, road vehicles was the leading export
of the EU (9.3%), followed by electrical machinery and appliances (8%). On the import side, the
share of petroleum rose sharply to reach 11.8% of the total, from 7.9% in 1999 (Table AI.4). Among
the regions, imports from Central and Eastern Europe rose by 42%, mainly due to sharply higher
imports of oil from the Russian Federation, and energy was also behind the rise in Africa’s share of


          61
               Eurostat News Release STAT/02/22.
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EU imports. Looking further back, to 1995, the significant changes in relation to 2000 are the rising
share of China, from 4.8% of EU imports to 6.8%, and declining shares of Switzerland and Japan.

(ii)          Commercial services trade62

31.      The EU accounts for abo ut a quarter of world trade in commercial services, excluding trade
between the Member States. In relative terms, the EU earned € 291 billion from commercial service
exports in 2000, compared with € 938 from merchandise exports, a ratio of about one to three. These
figures exclude earnings from providers of commercial services established in other countries, and
thus understate the full importance of services in the EU's external economic relations. Similarly, the
figures for imports, which indicate € 286 billion of commercial service imports in 2000, exclude the
earnings of service enterprises established in the EU.

32.     Travel is the leading category on both the export and import sides, followed by "other
business services", which includes legal, accounting, management, consulting, architectural, and
engineering services (Table I.4). The fastest growing category of commercial services trade during
the period 1992-00, on both the import and export sides, was computer and information services.

Table I.4
Commercial services exports and imports (extra-EU), 1992-00
(€ billion and per cent)
                                                                Exports                                      Imports

                                          Value            Share          Average annual    Value            Share       Average annual
                                                                          rate of growth,                                rate of growth,
                                          (€ bn)            (%)               1992-00       (€ bn)           (%)             1992-00
                                                                               (%)                                            (%)

                                                   2000                                               2000

 Total commercial services                291.1            100                       8.8      286.1            100                   9.3
 Transportation                            76.3            26.2                      6.7        73.3          25.6                   7.3
     Sea                                   32.8            11.3                      6.4        35.9          12.5                   8.3
     Air                                   34.6            11.9                      7.8             27        9.4                   6.5
     Other                                   8.9            3.1                      3.8        10.4           3.6                   6.1
 Travel                                    74.6            25.6                      9.1        77.7          27.2                   9.8
 Other services                           140.1            48.1                      10.9       135           47.2                  10.7

     Communications                          5.6            1.9                      9.5         6.2           2.2                  11.0
     Construction                            9.2            3.2                      2.2         6.4           2.2                   6.1
     Insurance                               9.1            3.1                      10.5        3.7           1.3                   0.3
     Financial                             18.8             6.5                      12.2        9.4           3.3                   8.8
     Computer and information                9.4            3.2                      25.8        6.3           2.2                  14.1
     Royalties and licence fees            13.3             4.6                      12.5       20.9           7.3                  10.8

    Other business services                71.6            24.6                      11.5       75.5          26.4                  12.4
       Personal, cultural and
        recreational                         3.2          1.1                        1.2         6.6           2.3                   7.5

Note:         Commercial services exclude government services.

Source:       Eurostat News Release 117/2001.



              62
                   Eurostat News Release 117/2001.
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33.      The United States is the EU’s leading partner for commercial services, accounting for 40% of
exports and of imports, with Japan a distant second. Due to the magnitude and depth of the
transatlantic economic relationship, the EU’s trade in commercial services is far more concentrated in
terms of trading partners and regions than for merchandise trade. Significant elements in two -way
commercial services trade are sea and air freight transport services, travel services, and intellectual
property. The substantial flows of bilateral foreign direct investment also have spill-over effects on
trade in commercial services (45% of EU trade in other business services is with the United States).63

(5)          OUTLOOK

34.      The Commission’s Spring 2002 forecasts anticipate a recovery developing in the course of
2002.64 The Commission expects domestic consumption growth to be supplemented by the recovery
of external demand in the United States in the first half of the year, with investment recovering in the
second half as uncertainties resolve themselves (Table I.5). Growth of the EU economy is expected to
decline to 1.5% in 2002, compared with 1.7% in 2001, but to recover to 2.9% in 2003.

Table I.5
Spring 2002 forecasts of real GDP growth for the EU and the euro area, 2002 and 2003
(Year-over-year percentage change)
                                                 2002                                                   2003
                                    Q1            Q2            Q3            Q4            Q1    Q2           Q3    Q4

 European Union                     0.6           1.1           1.7           2.6           3.0   3.0          2.9   2.6
 Euro area                          0.4           0.9           1.6           2.6           3.0   3.0          2.9   2.6
 Memorandum item:
 United States                      1.4           2.3           3.3           3.7           3.1   2.9          3.1   3.3

Source:      DG Economic and Financial Affairs (2002), Statistical Annex, Table 3, p.111.

35.     The Commission anticipates the ECB’s medium-term objective of 2% inflation will be met in
Q2 2002, but that the influence of higher inflation in Q1 2002 will be felt on the yearly average. The
Commission also anticipates that increases in the unemployment rate could continue into Q3 2002
given the lagged response of the unemployment rate to the cyclical upturn anticipated for the year.
The stronger growth predicted for 2003 is expected to bring the unemployment rate down to 7.5% in
2003, from 7.8% in 2002 and 7.6% in 2001.

36.      In its December assessment of economic prospects, the IMF largely shares the Commission’s
assessment of the economic outlook fo r 2002 and 2003, and adds that the European economy appears
to be less vulnerable to adverse shocks to confidence and activity than the United States because
"external balances are stronger; households are less indebted and less exposed to stock market
developments; and concerns about overinvestment and overcapacity among firms appear to be
lower", but concludes that "to underpin a robust recovery, it is critical – both for Europe and for the
rest of the world – that such strengths are complemented by more aggressive structural reforms to
labour, product and financial markets". 65




             63
              Eurostat, "Foreign Direct Investment: main actors in the EU market and the role played by offshore
centres (1992-2000)", Theme 2 – 37/2001.
          64
             European Commission Press Release IP/02/610, and DG Economic and Financial Affairs (2002).
          65
             IMF (2001), p. 43.
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II.      TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES

(1)      G ENERAL F RAMEWORK

(i)      Overview1

1.       The 1993 Treaty on European Union (EU Treaty), amended in 1999 by the Treaty of
Amsterdam, bases the Union on three "Pillars": Pillar One is the European Communities (EC), the
European Coal and Steel Community (ECSC)2, and the European Atomic Energy Community
(EAEC); Pillar Two is foreign policy and security; and Pillar Three is justice and home affairs.3
Pillar One includes Economic and Monetary Union (EMU).4
2.        The Intergovernmental Conference (IGC) of 2000 was concluded by the Treaty of Nice,
agreed by the European Council in December 2000 and signed on 26 February 2001.5 Entry into
force requires ratification by all Member States, of which ten (Austria, Denmark, Finland, France,
Germany, Luxembourg, Netherlands, Portugal, Spain, and Sweden) had deposited their instruments of
ratification as of 1 May 2002; Ireland’s referendum on 7 June 2001 had a negative outcome.6
3.      The Treaty of Nice (once ratified) will amend the existing treaties to prepare EU institutions
for enlargement. It will also change, completely or partly, 27 provisions of the EC Treaty from
unanimity to qualified majority vote (QMV) in the Council.7 Of particular interest to WTO Members
is the shift to QMV for Commission proposals for the negotiation and conclusion of international
agreements on services (with certain exceptions) and the commercial aspects of intellectual property
rights. Progress on QMV in qualitative terms, however, was considered to be disappointing; the
Commission’s President noted that "little or no progress was made on cohesion, tax regulation and
social regulation, all areas in which the Conference came up against the intransigence of some
Member States". 8 The Treaty also provides for "a deeper and wider debate about the future of the
European Union"9, which was formally opened in March 2002 by the Convention on Europe, to
provide the basis for the IGC of 2004.10
(ii)     Institutional framework

4.       There have been no changes in the EU's institutional framework related to trade policy during
the period under review. The European Council gives political direction to the European Union. The
Commission has the exclusive right of initiative for proposed Community Acts, which may consist of:
regulations, binding and directly applicable in all Member States; directives, which require
transposition into Member State law and practice (e.g., Internal Market legislation); decisions, binding
upon the Member State/person to whom they are addressed; and recommendations and opinions,
which have no binding force. Depending on the type of decision and the area covered, decisions are
taken by the Commission, or by the Council, or by the Council and European Parliament through co-
decision. Depending on the treaty provision, the Council decides by simple majority, qualified

         1
          European Commission (2001).
         2
          The ECSC Treaty will expire on 23 July 2002, 50 years after it laid the foundation of the Community.
        3
          European Communities (1997).
        4
           Twelve Member States comprised the euro area as of 1 January 2002. Denmark and the United
Kingdom have an opt-out clause for Stage Three of EMU, while Sweden does not fulfil the convergence criteria.
        5
          OJ C 80, 10/3/2001.
        6
            European Union online information.                 Available at:           http://europa.eu.int/comm/nice_treaty
[1 May 2002].
        7
          SEC(2001)99.
        8
          European Commission SPEECH/00/499.
        9
          Treaty of Nice "Declaration on the Future of the Union", (OJ C OJ C 80, 10/3/2001, p. 85).
        10
           European Union online information. Available at: http://europa.eu.int/futurum/index_en.htm.
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majority vote (QMV) or unanimity. Decisions by the European Parliament are taken by absolute
majority of votes cast by Members (MEPs).

5.      Community Acts are implemented at Community level or at Member State level, overseen by
the Commission. The Council and/or European Parliament may delegate implementing powers to the
Commission, which then takes decisions assisted by a committee composed of Member State
representatives (comitologie) operating under the advisory, management, or regulatory procedure,
depending on the EC Treaty provisions that apply to the matter.11 To provide for transparency in this
area, a complete list of the 244 committees was published in 2000 12, and a report on their functioning
was issued in February 2002, indicating that the Commission adopted 2,838 decisions in 2000.13

6.       Of the 12 independent EU agencies, three have decision-making roles to implement
regulations: the Office of Harmonisation in the Internal Market, the Community Plant Variety Office,
and the European Agency for the Evaluation of Medicines. In February 2002, the European Food
Safety Agency was established to provide risk-assessment services to the Commission and to the
Member States (Chapter III(1)(viii)). Proposals for the creation of two new agencies are before the
Council and the European Parliament: a maritime safety agency, and an air safety agency. Only the
latter will have decision-making powers.

7.       The European Court of Justice ensures that, in the interpretation and application of the EC
Treaty, the law is observed.14 The Court of Auditors examines the revenue and expenditure accounts
of the Community to ensure the reliability of the accounts and the legality and regularity of the
underlying transactions, on which it reports annually to the European Parliament and the Council.15

8.    Citizens may enforce their rights under Community law or may complain to the European
Ombudsman.16

(iii)    Transparency and public consultations

(a)      Transparency

9.       Publication of Community Acts is required in the Official Journal of the European
Communities (Article 254). The 1999 Treaty of Amsterdam created a right of access to documents of
Community institutions, subject to limits for the protection of public and private interests
(Article 255), given legislative effect in 2001.17 The new legislation continues the existing policy on
access to documents, with several improvements. These are: to extend the scope of the policy to
documents submitted by third parties, not just the documents produced by the institutions
themselves18; to release a document protected by an exception if the public interest demands it; to
establish a document register; and reduce time limits for replies to 15 working days. There are no

         11
             Council Decision 1999/468/EC. For a summary of comitologie see WTO (2000a), Box II.1.
         12
             OJ C225, 9/8/2000.
          13
              OJ C 37, 9/2/2002. The report indicates that agricultural issues account for about two thirds of the
total, and that only six were referred to the Council as a result of the Commission not obtaining the necessary
majority for adoption, indicating that "the committees’ work is characterised by a high degree of consensus".
          14
             Court of Justice (2001).
          15
             Court of Auditors (2001).
          16
             European Ombudsman (2002).
          17
              Regulation 1049/2001 entered into effect on 3 December 2001 to replace the "Decision of the
European Parliament of 10 July 1997 on public access to European Parliament documents", Council Decisions
93/730/EC and 93/731/EC, and Commission Decision 94/90/EC.
          18
             Declaration 35 of the Treaty of Amsterdam permits a Member State to ask the Commission, or the
Council, to withhold communication of a document from that State to third parties without its prior agreement.
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nationality restrictions on the natural or legal persons that are beneficiaries of the policy. 19 No
changes have been made regarding public access to deliberations; the European Parliament holds its
sessions in public, while those of the Council and Commission are closed.

(b)      Consultation

10.      The Commission’s White Paper on European Governance, issued in July 2001, calls for a
renewal of the "Community Method" by involving more people and organizations in shaping and
delivering EU policy.20 Such consultation "helps the Commission and other Institutions arbitrate
between competing claims and priorities and assists in developing a long term policy perspective". 21
As from 2000, the Commission has applied a code of conduct to consultations, and intends to develop
more extensive partnership arrangements. 22

11.     The Commission has created the Consultation, the European Commission and Civil Society
(CONECCS) database, to: (a) promote transparency on civil society organizations and consultative
mechanisms; (b) provide a means for civil society organizations to register as potential partners for
consultation (950 are registered); and (c) assist the Commission in identifying an appropriate mix of
partners for consultation. 23 With respect to trade policy, the Commission consults regularly with
representatives of civil society, business, and trade unions through plenary meetings, issue groups,
and ad hoc meetings.

(2)      E NLARGEMENT24

12.      Thirteen countries are candidates for accession to the EU; if and when all accede, the EU's
population will increase by 45% (by 170 million), its land area by 34%, and its GDP by 7%.25 It has
been estimated that enlargement-related reforms by the ten Central and Eastern Europe countries
(CEECs) would raise their rates of GDP growth on average by up to 2% annually for a decade, while
the effect on the GDP of EU-15 was estimated at a 0.7% rise over ten years.26

13.     The Copenhagen European Council of 1993 set the political and economic criteria for
accession to the EU.27 Accession negotiations have been formally launched with Bulgaria, Cyprus,
the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the

         19
              In line with the institutions' transparency policy, as from 1 January 2002, access to and consultation
of all official documents available in the EUR-Lex portal, in particular to documents published in the Official
Journal, is free of charge, irrespective of adoption or publication date, or the formats involved.
          20
             COM(2001)428.
          21
             COM(2001)428, p. 15.
          22
              On 1 November 2000, a new Code of Good Behaviour for relations between officials and the public
came into force which, inter alia, provides for persons with a direct interest in Commission proposals or
decisions to be allowed to make their views directly known to the Commission, and to be given the reasons on
which the decisions are based and the arrangements for appeal (European Commission Press Release
IP/00/999).
          23
                European Union online information.                   Available at: http://europa.eu.int/comm/civil_society/
coneccs/index_en.htm.
          24
             DG Enlargement (2001).
          25
             Eurostat News Release STAT/01/129.
          26
             DG Economic and Financial Affairs (2001b).
          27
               "Membership requires that the candidate country has achieved stability of institutions guaranteeing
democracy, the rule of law, human rights and respect for and protection of minorities, the existence of a
functioning market economy, as well as the ability to cope with competitive pressures and market forces within
the Union, and the ability to take on the obligations of membership, including adherence to the aims of political,
economic and monetary union." (DOC/97/8 of 15 July 1997).
WT/TPR/S/102                                                                              Trade Policy Review
Page 16



Slovak Republic, and Slovenia; although Turkey’s candidacy was recognized in 1999, negotiations
have not begun. The negotiations concern the 31 chapters of the acquis communautaire and include
requests by the candidate country for transitional periods for certain laws and rules; reports on
progress to date were last issued in November 2001.28 The negotiating positions proposed by the
Commission for unanimous adoption by the Council have included transitional periods of five to
seven years for the free movement of workers from new Members 29, and of four or five years for
access of new Members to the road haulage sector.30

14.      The Gothenburg European Council in June 2001 set the objective of the candidates’
participation in the 2004 elections to the European Parliament. The (still to be ratified) Treaty of Nice
covers institutional reform. The Commission proposes to finance the participation of up to ten new
Member States in the major Community programmes of the Common Agricultural Policy (CAP) and
structural operations to 2006 in the context of the agreement reached at the Berlin European Council
in March 1999.31 The Commission anticipates new expenditure of € 5.6 billion in 2004 under a
proposal issued on 30 January 2002, mainly as a result of agricultural subsidies, although access to
direct payments in newly acceding Member States would be progressive (Chapter IV(1)).

(3)     COMMON COMMERCIAL P OLICY

(i)     Objectives

15.      The broad objectives of the EU's common commercial policy have remained the same since
its last Review in mid 2000. The common commercial policy (CCP) is established mainly under
Article 133 of the EC Treaty32, subject to the integration of environmental protection requirements, in
particular with a view to promoting sustainable development. Its aim is "to contribute, in the common
interest, to the harmonious development of world trade, the progressive abolition of restrictions on
international trade and the lowering of customs barriers", in the context of the general aims of
economic policy (Chapter I(3)).

(ii)    Framework

16.      The framework for the CCP has not changed since the previous Review of the EU. The
Community has exclusive competence for matters under GATT 1994 and competence is shared with
the Member States on matters under the GATS and TRIPS Agreements, although there is no strictly
delimited division of competence.33 A pending judgement of the Court of Justice on the open-skies
agreements, concluded with the United States and challenged by the Commission, is expected to
outline the allocation of competence on air transport.34 In the WTO, the Commission speaks on
behalf of the Community, and consults actively with the Member States.


        28
              European Union online information. Available at: http://europa.eu/int/comm/enlargement/.
        29
              European Commission Press Release IP/01/561.
          30
              European Commission Press Release IP/01/1551.
          31
              European Commission Press Release IP/02/170.
          32
              Articles 71 and 74 of the ECSC Treaty apply to coal and steel products until the expiry of the ECSC
Treaty in 2002, when the EC Treaty will apply.
          33
              Court of Justice ruling 1/94, discussed in WTO (1995), Vol. 1, p. 13; and Pescatore (1999).
          34
               Eight Member States are concerned: Austria, Belgium, Denmark, Finland, Germany, Luxembourg,
Sweden, and the United Kingdom. The context of the cases (C -466/98, C-467/98, C-468/98, C-469/98, C-
471/98, C-472/98, C-475/98, and C-476/98) was the mandate agreed on 25 July 1996 by the Council for the
Commission to negotiate an agreement on a Transatlantic Common Aviation Area with the United States, but
whose realization was hampered by the agreements concluded bilaterally with the United States under its open-
skies initiative launched in 1994 (European Commission Press Release IP/98/966). Although not binding on the
European Union                                                                               WT/TPR/S/102
                                                                                                  Page 17



17.     The Council decides on the CCP by qualified majority vote, except for definitive anti-
dumping and countervailing actions where a simple majority applies. The negotiating directives from
the Council for the "WTO Millenium Round" remained the position of the EU at the Fourth
Ministerial Conference in Doha, which agreed the Doha Development Agenda (DDA).35 The assent
of the European Parliament is required for certain agreements beyond the scope of the CCP, including
the WTO, and association and cooperation agreements. The Commission has a policy of informing
and consulting the European Parliament, which regularly comments on Commission policy or
proposals.

18.      Under the (still to be ratified) Treaty of Nice, Article 133 is to be modified to bring into
exclusive Community competence the negotiations of agreements that concern services (with certain
exceptions) and the commercial aspects of intellectual property rights. The Commission will
negotiate such agreements under directives from the Council, which will approve the result by QMV
or by unanimity in limited instances where unanimity is required for internal decisions (the principle
of "parallelism"); the assent of the European Parliament will also be required. In particular,
unanimity will apply to agreements that relate to trade in cultural and audiovisual services, education
services, and social and human health services. Transport services are also to remain outside the
scope of Article 133 and are governed by the applicable provisions of the EC Treaty. According to
Commission officials, the revised Article 133 is expected to enhance the effectiveness of the EU in
the WTO and strengthen the hands of the Commission in trade negotiations.36

(iii)   Instruments

19.      To achieve its main trade policy objectives, the EU continues to combine multilateral,
regional, and bilateral approaches to trade and economic relations; a sustainability impact assessment
(SIA) is increasingly being integrated into such instruments.          In addition to the longstanding
commitment of the Member States to the multilateral trading system, the EU maintains an extensive
system of regional trade agreements, and preferential agreements and arrangements (Box II.1).
Imports into the EU from nine WTO Members are subject to exclusively MFN treatment in all sectors
– Australia; Canada; Chinese Taipei; Hong Kong, China; Japan; Republic of Korea; New Zealand;
Singapore; and the United States – accounting together for 45.2% of extra-EU imports in 2000.

20.      In addition to policies on imports and exports (Chapter III(1) and (2)), the Community has a
market-access strategy for third-country markets. The Market Access Database identifies barriers to
trade on third-country markets.37 The Commission also publishes annually a report on barriers to
trade and investment maintained by the United States, its most important trade and investment
partner.38 Based on this information, the Commission, after discussion with the Article 133
Committee, identifies priority barriers, which may be addressed by diplomatic or formal processes,



Court, the Opinion of the Advocate General, delivered on 31 January 2002, states that Member States may not
conclude international agreements concerning matters covered by the common rules, and proposes that the
Court of Justice should declare that the open-skies agreements are contrary to Community law as regards fares
of United States air carriers on intra-Community routes, computerized reservation systems, and national clauses
(Court of Justice Press Release 10/02). In the light of the Opinion of the Advocate General, the Commission
anticipates renewing the negotiation (European Commission Press Release IP/02/190).
          35
              European Commission "Communication from the Commission to the Council and the European
Parliament on the European Union approach to the World Trade Organization Millenium Round", and
"Preparation of the Third WTO Ministerial Conference: Council Conclusions of 25 October 1999".
          36
             Financial Times, 5 December 2000.
          37
              Market Access Database [Online]. Available at: http://mkaccdb.eu.int.
          38
             DG Trade (2001b).
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and multilateral (e.g., WTO dispute settlement procedures or multilateral negotiations) or bilateral
approaches.

 Box II.1: Parties to regional trade or preferential trade agreements with the European Union, and
 beneficiaries of EU preferential arrangements, in force as of April 2002
 Europe Agreements: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,
 Slovakia, Slovenia

 Association Agreements: Cyprus, Malta, Turkey

 Stabilization and Association Agreements: Former Yugoslav Republic of Macedonia (FYROM), Croatia

 Euro-Mediterranean Association Agreements: Israel, Morocco, the Palestinian Authority, Tunisia

 Cooperation Agreements (Euro-Med Association Agreements concluded, but not in effect, or under
 negotiation): Algeria, Egypt, Jordan, Lebanon, Syria

 Other Free-Trade Agreements: Denmark (Faroe Islands), Iceland, Liechtenstein, Mexico, Norway, South
 Africa, Switzerland

 Other Customs Unions : Andorra, San Marino

 Association of Overseas Countries and Territories (OCT): Anguilla, Antarctica, Aruba, British Antarctic
 Territory, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, French
 Polynesia, French Southern and Antarctic Territories, Greenland, Mayotte, Montserrat, Netherlands Antilles,
 New Caledonia, Pitcairn, Saint Helena, Ascension Island, Tristan da Cunha; South Georgia and the South
 Sandwich Islands, St. Pierre and Miquelon, Turks and Caicos Islands, Wallis and Fortuna Islands.

 EU-African, Caribbean and Pacific (ACP) Partnership: Angola, Antigua and Barbuda, Bahamas,
 Barbados, Belize, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cap Verde,
 Central African Republic, Chad, Comoros, Congo, Cook Islands, Dem. Rep. of Congo, Cote d'Ivoire,
 Djibouti, Dominica, Dominican Republic, Equatorial Guinea, Eritrea, Ethiopia, Federated States of
 Micronesia, Fiji, Gabon, Gambia, Ghana, Grenada, Guinea, Guinea-Bissau, Guyana, Haiti, Jamaica, Kenya,
 Kiribati, Lesotho, Liberia, Madagascar, Malawi, Mali, Marshall Islands, Mauritania, Mauritius,
 Mozambique, Namibia, Nauru, Niger, Nigeria, Niue Islands, Palau, Papua New Guinea, Rwanda,
 St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Sao Tome and Principe,
 Senegal, Seychelles, Sierra Leone, Solomon Islands, Somalia, South Africa, Sudan, Suriname, Swaziland,
 Tanzania, Togo, Tonga, Trinidad and Tobago, Tuvalu, Uganda, Vanuatu, Zambia, Zimbabwe

 Autonomous Trade Measures for the Western Balkans: Albania, Bosnia-Herzegovina, the Federal
 Republic of Yugoslavia, Kosovo

 Generalized System of Preferences (GSP) only: Afghanistan, Argentina, Armenia, Azerbaijan, Bahrain,
 Bangladesh, Belarus, Bhutan, Bolivia, Brazil, Brunei Darussalam, Cambodia, Chile, People’s Republic of
 China, Colombia, Costa Rica, Cuba, East Timor, Ecuador, El Salvador, Georgia, Guatemala, Honduras,
 India, Indonesia, Iran, Iraq, Kazakhstan, Kyrgyzstan, Kuwait, Lao People’s Dem. Rep., Libyan Arab
 Jamahiriya, Malaysia, Maldives, Moldova, Mongolia, Myanmar, Nepal, Nicaragua, Oman, Pakistan,
 Panama, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Sri Lanka, Tajikistan,
 Thailand, Turkmenistan, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Viet Nam,
 Yemen; American Samoa, Bermuda, Bouvet Island, Cocos Islands, Cook Islands, Gibraltar, Guam, Heard
 and McDonald Islands, Macao, Norfolk Island, Northern Mariana Islands, United States Minor Outlying
 Islands, Tokelau Islands, Virgin Islands (USA)
 Note:   Least-developed countries (LDCs) in italics.
 Source: WTO Secretariat, based on DG Trade (2001a).
European Union                                                                             WT/TPR/S/102
                                                                                                Page 19



21.     Complaints may also originate with a Community industry, enterprise or Member State under
the Trade Barriers Regulation (TBR).39 Since 1995, 17 complaints have been initiated, of which
eleven remain active (the others have been suspended or terminated). Recourse to WTO dispute
settlement procedures is provided for, where applicable, and has been used in seven of the 17
complaints. During the period under review, two new complaints were initiated: on the Republic of
Korea’s shipbuilding subsidies; and on Colombia’s VAT regime for imported motor vehicles.

(4)     E XTERNAL TRADE RELATIONS

(i)     WTO

(a)     Overview

22.      The EU exercises a leadership role among WTO Members, due to its significance in world
trade and the world economy. The EU was in the forefront of building a coalition in favour of the
launch of the Doha Development Agenda at the Fourth Ministerial Conference, in November 2001.
The EU worked with its trading partners to rebuild confidence and cooperation within the WTO
following the failure to launch the "Millenium Round" at the Third Ministerial Conference in S     eattle.
It also participated actively in the ongoing negotiations on agriculture and services resulting from the
build-in agenda. The EU has worked to improve public understanding of the WTO by supporting
measures to enhance external transparency, including through interaction with parliamentarians and
representatives of civil society. The EU has also sought to promote closer cooperation between the
WTO and other intergovernmental organizations.

23.     Within the WTO, the EU’s efforts during the period under review have included:

        -           adopting the "Everything-But-Arms (EBA)" initiative for least-developed countries
                    (LDCs) (section (iii)(d));

        -           seeking resolution of the implementation issues that many developing countries had
                    made a condition for their support for the launch of a new work programme; and

        -           supporting enhanced technical assistance to facilitate implementation, in particular by
                    contributing to the Integrated Framework Trust Fund for Least Developed Countries.

24.      At the Doha Ministerial Conference, the EU, noting the need to find the right mix of trade and
other related policies, stressed the urgency of launching trade negotiations that would bring short- and
long-term benefits and that would be capable of conclusion within a short (preferably three-year)
time-scale.40 The EU supports the integration of sustainability into the work of all negotiating groups.
In the run-up to the Ministerial Conference, the EU showed flexibility in its negotiating positions
(particularly regarding investment, competition, environment, and on the question of implementation).

(b)     WTO market-access commitments

25.      The tariff commitments of EU-15 are contained in Schedule CXL. All tariff lines are bound.
On agricultural products (WTO definition), the EU maintains market-access commitments in the form
of tariff quotas on certain products. The EU has also bound and reduced the Aggregate Measurement
of Support (AMS), as well as the value and volume of subsidized exports.


        39
             Council Regulation 3286/94, as amended by Council Regulation 356/95.
        40
             WTO document WT/MIN(01)/ST/4.
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Page 20



26.      The quotas maintained by the EU under the WTO Agreement on Textiles and Clothing (ATC)
are to be eliminated by the end of 2004. During the period under review, the EU integrated (on
1 January 2002) a further 18.08% of 1990 imports of textiles and clothing from WTO Members
(excluding China), bringing to 51.39% the imports integrated since 1995 (Chapter III(1)(vi)). The EU
has to date eliminated the quantitative restrictions on 20% of imports restricted in 1990, leaving the
liberalization of 80% for the final stage on 31 December 2004.

27.      The specific services commitments of EU-12 are contained in their common GATS Schedule
(GATS/SC/31); those of Austria, Finland, and Sweden are scheduled separately (GATS/SC/7,
GATS/SC/33, and GATS/SC/82, respectively), except for those on basic telecommunications and
financial services (GATS/SC/31/Suppl.3 and GATS/SC/31/Suppl.4, respectively). The EU's list of
GATS Article II (MFN) exemptions (GATS/EL/31) relate to audio-visual services, transportation
services, and subsidies;      exemptions for Austria, Finland, and Sweden are listed separately
(GATS/EL/7, GATS/EL/33, and GATS/EL/82, respectively).

(c)     Notifications

28.      The EU submits its notifications to the WTO as unrestricted documents, in principle, which
makes them available to the public and supports immediate derestriction of "most WTO
documents". 41 Notifications concern legislation on covered measures as well as regular reports on
developments in the use of covered instruments (Table AII.1). The EU regularly notifies its applied
most-favoured-nation tariff (the latest is for 2002) to the WTO's Integrated Database (IDB). The EU
also notifies its regional trade agreements after their entry into force, for examination by the
Committee on Regional Trade Agreements (CRTA); notification of a number of agreements, or of
their provisions concerning trade in services, is pending (Table AII.2).

(d)     WTO dispute settlement

29.       The EU has been directly involved in 91 of the 252 requests for consultations filed under the
WTO dispute settlement proceedings between 1995 and 27 March 2002. The EU initiated 57
complaints, of which 21 have been completed, 12 have been settled, 20 are pending, and 4 are active.
The EU has been a respondent in 34 complaints, of which 11 have been completed, 5 have been
settled, 16 are pending, and 2 are active.42 Most complaints do not proceed to the panel stage.

30.     The United States is the trading partner most often concerned by the EU's complaints (24 of
the 57 complaints)43, and most frequently lodges complaints against the EU or its Member States.
Developments in high-profile disputes during the period under review include the U.S. Foreign Sales
Corporation (FSC) scheme, involving an estimated US$4.04 billion in annual export subsidy benefits
to U.S. companies.44 In March 2002, the EU lodged a complaint on the definitive safeguard measure
imposed by the United States on imports of certain steel products.45 During the period under review, a
solution was found in the "bananas" case and the U.S. suspension of concessions was eliminated


        41
            The EU is of the view that, with a few limited exceptions, it should be possible to provide for the
immediate derestriction of working documents, Secretariat background papers, meeting minutes, and agendas
and panel reports once translated into all three official languages (WTO document WT/GC/W/412,
6 October 2000).
        42
            WTO documents WT/DSB/26/Add.1 and WT/DSB/OV/1 to 5.
        43
            The EU has joined consultations as a third party on ten complaints where the United States is the
respondent.
        44
            WTO document WT/DS108.
        45
            WTO document WT/DS248. See European Commission Press Release IP/02/367.
European Union                                                                               WT/TPR/S/102
                                                                                                  Page 21



definitively on 1 January 2002.46 The EU remains subject to the suspension of concessions by the
United States in the "hormone-treated beef" case.47 Also during the period under review, complaints
were lodged by Thailand and India on the conditions under which the EU grants tariff preferences to
developing countries under its Generalized System of Preferences (GSP) scheme (section (iii)
below).48

(ii)    Regional trade agreements

(a)     European Free Trade Association (EFTA)

31.       The Community's free-trade agreements with individual members of EFTA, concluded in the
early 1970s, remain in force for Iceland, Liechtenstein, Norway, and Switzerland.49 The European
Economic Area (EEA) established in 1994 extends the Internal Market to Iceland, Liechtenstein, and
Norway. Provisions in the (old) bilateral agreements apply only to the extent that the matter is not
dealt with by the EEA. Switzerland decided against participation in the EEA in 1992, and seven
bilateral agreements – on land-based transport, air transport, the free movement of people, agriculture,
research, procurement, and technical barriers to trade – should enter into force in 2002.50 Protocols on
rules of origin provide for a diagonal cumulation of origin on industrial products between the
Community, the EFTA countries and the CEECs, plus Turkey.51

(b)     Europe Agreements52

32.      The Community’s Europe Agreements with the CEECs contain provisions on free trade in
goods and services. On industrial products, the parties have a liberalization schedule for tariff and
non-tariff barriers that is faster for the EU than for the CEECs. The EU grants duty-free and quota-
free treatment to imports of industrial products originating in the CEEC. Protocols on rules of origin
provide for a diagonal cumulation of origin on industrial products between the Community, the EFTA
countries, and the CEECs, plus Turkey.

33.     During the period under review, protocols on reciprocal tariff concessions on agricultural
products entered into force on 1 July 2000 with Bulgaria, Estonia, Hungary, the Czech Republic,
Latvia, Lithuania, Romania, the Slovak Republic, and Slovenia, and on 1 January 2001 with Poland.
These protocols have raised the share of CEEC duty-free agricultural exports to the EU to 75%, and
have raised the share of EU duty-free exports of agricultural products to the CEEC to 61%.53 Further

        46
              The United States has DSB authorization to suspend tariff concessions on products to a value of
US$191.2 million (WT/DS27/49), and Ecuador has authorization to suspend TRIPS obligations (WT/DS27/52),
to a value of US$201.6 million (WT/DS27/ARB/ECU). The solution also suspends the EU’s procedure on
"carousel" legislation (WT/DS/200).
          47
              The United States has DSB authorization to suspend tariff concessions on products to a value of
US$116.8 million (WT/DS26/21), and Canada has authorization to suspend tariff concessions on products to a
value of Canadian $11.3 million (WT/DS48/19).
          48
              WTO documents WT/DS242 and WT/DS246, respectively. The EU settled a related WTO
complaint by Brazil (WTO document WT/DS209), in the form of a tariff-free quota on soluble coffee.
          49
              EFTA was established in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and
the United Kingdom. EFTA's membership has been reduced by the accession to the EC of Denmark and the
United Kingdom in 1973, Portugal in 1986, and Austria, Finland, and Sweden in 1995.
          50
             WTO (2000c). See also L’Agefi - Guide des PME, "Contenu des 7 accords", Novembre 2000.
          51
             WTO documents WT/REG1, 2, 12, 15, 16/N/1; WT/REG7-9, 20, 28-30, 32-35/N/2, 37, 41 42, 45-
48, 62/N/2; WT/REG18/N/3; and WT/REG11/N/4.
          52
              See European Union online information. Available at: http://europa.eu/int/comm/enlargement/, for
the progress reports issued in November 2001.
          53
             European Commission Press Release IP/00/982.
WT/TPR/S/102                                                                             Trade Policy Review
Page 22



negotiations are in progress. Protocols on Conformity Assessment and Acceptance of Industrial
Products (PECAs) were also agreed (Chapter III(1)(viii)).

(c)     Association agreements

34.       The Community concluded interim agreements leading to the eventual formation of a customs
union with Turkey in 1963, and with Cyprus and Malta in the early 1970s; each party has also
requested accession to the EU (section (2)). A Customs Union Agreement with Turkey entered into
force in 199654, and negotiations on services and government procurement were launched in 2000.55
Protocols on rules of origin provide for a diagonal cumulation of origin on industrial products
between the Community, the EFTA countries and the CEECs, plus Turkey. With Cyprus, the
agreement provides for the customs union to be completed by 2003. According to the Commission,
full trade liberalization was to take place as the next stage, but has not been completed due to the start
of accession negotiations. No date for a customs union has been set with Malta, but the Malta-EU
Association Committee met in 2001 for the first time since 1990. Negotiations on the reciprocal
liberalization of fish and fishery products have been concluded.

(d)     Euro-Mediterranean association agreements

35.      The trade objective of the "Euro-Mediterranean Partnership" launched in 1995 is a
Euro-Mediterranean free-trade area by 2010.56 Euro-Mediterranean association agreements have been
concluded between the EU and Egypt, Israel, Jordan, Morocco, the Palestinian Authority, and Tunisia.
The agreements have entered into force with Israel, Morocco, and Tunisia and, on an interim basis
with the Palestinian Authority; although signed, the agreements with Algeria, Egypt, and Jordan are
not yet in force. Negotiations have been concluded with Lebanon, and are in progress with Syria.

36.      These agreements provide for a greater degree of liberalization by the EU’s partner than the
cooperation agreements they replace. These provided for non-reciprocal access to the EU market,
while the new agreements provide for the establishment of a bilateral free-trade area, covering
industrial products and including concessions on certain agricultural and fishery products. An
asymmetric liberalization schedule applies, generally immediate for the EU, with a transition period
for full implementation by the other partner, except for Israel, which is immediate. For example, the
transition period is 15 years in the agreement with Egypt 57, and 12 years in the agreements with
Morocco and Tunisia.

(e)     Stabilisation and Association Agreements

37.     The EU signed a Stabilisation and Association Agreement (SAA) with the Former Yugoslav
Republic of Macedonia (FYROM) on 9 April 2001; and an Interim Agreement implements the
provisions on trade and trade-related matters since 1 June 2001.58 The EU also signed an SAA with
Croatia on 29 October 2001 with provisional implementation of provisions on trade and trade -related
matters as of 1 March 2002.59 For the EU, the SAAs contractualize the elimination of customs duties
on imports of goods originating in Croatia and the FYROM under the Autonomous Trade Measures

        54
             Imports from Turkey, however, remain subject to the application of anti- dumping and countervailing
procedures. For a full description of the trade provisions, see "Turkey – Restrictions on Imports of Textile and
Clothing Products", complaint by India (WTO document WT/DS34).
         55
            Decision 2/2000 of the EC-Turkey Association Council of 11 April 2000.
         56
            COM(1994)427.
         57
            European Commission MEMO/01/11.
         58
            WTO document WT/REG129/N/1.
         59
            European Commission Press Release IP/01/1503.
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(ATM) for the Western Balkans (section (iii)(c)). The FYROM is to progressively reduce customs
duties each year over a maximum period of ten years, with the exception of agricultural, textile, and
steel products, which are subject to separate provisions. Croatia is to progressively reduce customs
duties each year over a maximum period of five years, with the exception of agricultural products,
which are subject to separate provisions.

(f)      Other European agreements

38.    Customs union agreements are in existence for Andorra and San Marino while a free-trade
agreement applies with the Faroe Islands.

(g)      Interregional agreements

Africa

39.      The EU’s Trade, Development and Cooperation Agreement (TDCA) with South Africa
entered into force provisionally on 1 January 2000. Under the TDCA, 95% of EU imports from South
Africa will be fully liberalized at the end of a ten-year period, and 86% of South Africa's imports from
the EU will be fully liberalized at the end of a 12-year period, covering more than 90% of bilateral
trade. The separate agreement on the recognition, protection and control of wine-name and spirits
designations was signed and entered into force on a provisional basis on 28 January 2002. A separate
agreement for concessions on fisheries products remains under negotiation. The TDCA may also
have implications for Botswana, Lesotho, Namibia and Swaziland, which are South Africa’s partners
in the Southern African Customs Union (SACU).

Latin America

40.       The EU has the goal of closer political and economic ties with Latin America and the
Caribbean.60 The free-trade agreement between the EU and Mexico entered into force on 1 July 2000
and covers: market access in goods; rules of origin; technical regulations; sanitary and phytosanitary
measures; safeguards; investment; trade in services; government procurement; competition policy;
intellectual property; and dispute settlement.61 The FTA provides for a liberalization schedule on
goods that is faster for the EU than for Mexico. For industrial goods, the EU is to eliminate all import
duties by 1 January 2003 (on the basis of the GSP rates applied to Mexican imports in 1998), while
Mexico is to do so by 1 January 2007. For covered agricultural and fisheries products, the EU is to
eliminate tariffs for most products by 2008 and Mexico by 2010. Tariff quotas apply for certain
agricultural and fisheries products. Negotiations on bilateral association agreements are also in
progress with Chile and MERCOSUR.

Middle East

41.    A cooperation agreement was concluded with the Gulf Cooperation Council (GCC)62 in 1988
and negotiations on a free-trade agreement began in 1990. The negotiations have not progressed since
1993, due to proposals on the GCC side for the energy sector, which would have limited the ability of
the EU to introduce a carbon energy tax.63 In March 2002, the negotiations were restarted following a



         60
            European Commission SPEECH/00/346.
         61
            WTO document WT/TPR/S/97.
         62
            Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates.
         63
            COM(1995)541.
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new directive from the Council.64 The GCC had previously decided to advance the timetable for
completion of their customs union from 2005 to 1 January 2003.

(iii)   Preferential trade agreements and arrangements

(a)     Association with Overseas Countries and Territories (OCT) 65

42.     A new Council Decision on the OCT association arrangements was adopted on 27 November
2001 to continue the regime until the end of 2011.66 The EU has granted duty-free treatment on all
products originating in the OCT on a non-reciprocal basis since 1963, subject to a safeguard
provision.67 Origin rules provide for cumulation with the Community and the ACP (section (b)
below), without limits, except for rice and sugar. Transshipment is a unique feature of the EU’s trade
arrangements with the OCT, according to which non-originating OCT products in free circulation in
the OCT gain access to the EU market, with exceptions, provided they have paid the applicable EC
customs duty, which amounts to a transfer to the OCT budget.

(b)     ACP-EC Partnership Agreement

43.      The ACP-EC Partnership Agreement was signed on 23 June 2000 in Cotonou, Benin.68 Of
the 77 ACP countries signatories to the Cotonou Agreement, 55 are WTO Members and 40 are LDCs.
The Cotonou Agreement provides for the eventual shift from the non-reciprocal trade preferences
granted under the Fourth Lomé Convention to Economic Partnership Agreements (EPAs), to be
negotiated with ACP partners starting in September 2002 with entry into force by 1 January 2008 at
the latest. Meanwhile, the EU continues to grant duty-free treatment on industrial and processed
agricultural products, as well as fishery products, originating in 76 ACP countries on a non-reciprocal
basis (South Africa is subject to the TDCA (section (ii)), and protocols apply to sugar, beef, and veal.
The EU obtained a waiver from WTO Members for obligations under Article I:1 of GATT 1994
(which concerns MFN treatment) on 14 Novembe r 2001, once opposition from a number of WTO
Members was withdrawn in the context of the launch of the DDA. 69

(c)     Autonomous Trade Measures (ATMs) for the Western Balkans

44.    The EU introduced new autonomous trade measures (ATMs) in September 2000 for imports
from Albania and from certain countries and territories of the former Yugoslavia – Bosnia-
Herzegovina, Croatia, the Federal Republic of Yugoslavia, including Kosovo, and the former
Yugoslav Republic of Macedonia (FYROM) – which are applicable until 31 December 2005.70 The

        64
             European Commission Press Release IP/02/442.
        65
              The 20 overseas countries and territories (OCT) are those with which Denmark, France, the
United Kingdom, and the Netherlands have special relations (COM(1999)163).
          66
              Council Decision 2001/822. The Commission had originally proposed a continuation until 2007, in
keeping with the transitional arrangements for the ACP (COM(2000)732). The Commission notes "the issue of
the Association’s compatibility with the WTO rules is of particular concern as the Community has reaffirmed its
solidarity with the OCTs and expressed the importance it attaches to undertakings entered into under the WTO"
(COM(2000)732, p.14).
          67
             The 1971 decision was notified under GATT 1947 Article XXIV and examined in a working party
(GATT document L/3611, 18S/143).
          68
              The trade provisions of the Partnership Agreement entered into force, on the basis of transitional
measures, on 1 March 2000 (WTO document G/C/W/187, 2 March 2000).
          69
             WTO document WT/MIN(01)/15, 14 November 2001.
          70
              Council Regulation 2007/2000, as amended by Council Regulation 2563/2000. In December 2000,
the EU obtained a waiver from its obligations under Article I:1 of GATT 1994 until 31 December 2006 (WTO
document WT/L/380 and Corr.1).
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new regime eliminates the remaining tariff ceilings for industrial products, except for certain textile
products, and aluminium (from the Federal Republic of Yugoslavia only), and has a more extensive
coverage of agricultural and fishery products, as well as an extended geographical coverage, and
longer duration (more than four years). The regime is considered to be a forerunner to the conclusion
of SAAs, such as those concluded with Croatia and FYROM (section (ii)(e)).

(d)     Generalized System of Preferences (GSP)

45.     A revised GSP scheme is in effect for the period 1 January 2002 to 31 December 2004.71 The
new regime incorporates the "Everything-But-Arms (EBA)" initiative for LDCs, which took effect on
5 March 2001 and grants duty-free treatment for all products (except for arms), with certain
exceptions (rice, bananas, sugar), for which transitional arrangements apply.72

46.      GSP is available to 143 independent countries and 36 dependent countries and territories.
"Preference modulation" continues to apply, but to two categories rather than four as was the case in
the previous GSP regime, to offset the "erosion of preferential tariff margins". For sensitive products
(many agricultural products, textiles and textile articles, iron, and steel), the MFN ad valorem duties
are either reduced by a flat 3.5 percentage points (with certain exceptions, notably textiles and
clothing products) or specific duties are reduced by 30%. All other products are deemed non-
sensitive and are duty free. Product exclusions apply, however, for certain beneficiaries, either
because the sector has never been included for the beneficiary concerned (e.g., ECSC products for
transition economies), or because the tariff preferences have been removed for that country under
graduation (subsequent re-instatement may occur). Brazil and China have, for example, each been
graduated from nine sectors.

47.      Treatment better than this regime is provided for certain products from countries that combat
drug production and trafficking. Special incentive arrangements may also be granted to countries that
so request, upon demonstration of adherence to certain internationally recognized core labour
standards or to certain standards set by the International Tropical Timber Organization.73 The
incentives on core labour standards have been improved to encourage more countries to make a
request; under the previous GSP regime, only four applications were made; Moldova was granted the
special incentive as of 1 October 2000.74

48.     Many of the GSP beneficiary countries also benefit from preferences under other agreements
or arrangements (Box II.1). However, LDCs enjoy the most favourable preferential treatment under
GSP due to EBA initiative, including in relation to the ACP -EU Partnership Agreement, excluding the
commodity protocols (section (b) above). The 65 countries that benefit from preferences in the EU
market only under the GSP scheme (GSP -only countries) are transition economies of the former
USSR, non-OCT and non-ACP developing countries in Asia and Latin America, and in particular, the
nine LDCs among them.




        71
               Regulation 2501/2001 to replace Regulation 2820/98, as amended.      See "The Community 2002-
2004 GSP: an instrument of sustainable development", Speech by Pascal Lamy [Online]. Available at:
http://europa.eu.int/comm/trade [11 November 2001].
           72
              Regulation 416/2001.
           73
               In relation to the previous GSP regime, the scope of "core" labour standards, developed by the
International Labour Organization (ILO), has been enlarged from ILO Conventions 87, 98 and 138, to include
29, 100, 105, 111 and 82. ILO online information. Available at: http://www.ilo.org.
           74
              European Commission Press Release IP/00/892.
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III.       TRADE POLICIES AND PRACTICES BY MEASURE

(1)        MEASURES D IRECTLY AFFECTING IMPORTS

(i)        Customs procedures

(a)        Overview

1.       On 16 February 2001, the Commission announced a new strategy for the Customs Union1,
building on the "Customs 2002" programme, to be renewed in "Customs 2007". 2 In response to the
growing volume of trade across Community frontiers and given the need for more rapid customs
services and better operational implementation of customs rules, the strategy is based on upgrading
the EU’s fully computerized system to process customs declarations. The EU is also an active
participant in the discussions on customs aspects of trade facilitation in the WTO, the World Customs
Organization (WCO), and other fora.

2.       In addition to their traditional role in collecting duties, Customs have taken on new
responsibilities to protect EU citizens and businesses, for example against trade in dangerous or
harmful products (e.g., illicit substances, counterfeit and pirated goods, products infringing safety or
environmental legislation), and illegal traffic in endangered species. In 1999, fraud amounted to
€ 377 million (2.7% of total import duty revenue collected); cigarettes and dairy products were the
two leading products involved.         With respect to counterfeit and pirated goods, the customs
administrations recorded an increase of one third in seizures from 1999 to 2000, under legislation
implementing the TRIPS Agreement at the border (Table III.1).3 About half of the 6,253 cases
concerned clothing and accessories, followed by books and audio/video material (16%). The trend
continued in 2001 with a further increase of 27% in the number of cases. The Commission has
attributed the rising trend to (a) an increased focus of customs authorities, better targeting and sharing
of informatio n; and (b) an increase in and expanded range of counterfeit and pirated goods that are
traded.

Table III.1
Seizures of counterfeit and pirated goods in EU Member States, 1999-00
(Number of cases)
                                                                                   a
                                                                         MEMBERS
               EU       B      DK       D       EL      E       F        IR    I       L      NL       A       P         FI    S     UK


    1999       4,694   126      368    2,173    11      159     252       12   129      3     305     128      5         137   20     866

    2000       6,253   234      79     3,185    12      144     435       5    174     16     278     331      15        120   46    1,179

a          B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;              NL:
           The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.

Source:    DG Taxation and Customs (2000).

(b)        Community Customs Code

3.     The Community Customs Code, which has been in force since 1 January 1994, is
implemented by a Commission Regulation, and administered by the customs authorities of the



           1
             COM(2001)51. See European Commission Press Release IP/01/219 and MEMO/01/43.
           2
             COM(2002)26. A report on "Customs 2002" is contained in SEC(2001)1329.
           3
             Council Regulation 3295/94, as amended. See DG Taxation and Customs (2000).
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Member States.4 The Code applies uniformly throughout the customs territory of the Community to
exports and imports of goods.5 A "Community good" is either one that originates in the Community
or an imported good that has acquired that status by virtue of being released into free circulation, or a
combination of the two.

4.       Goods entering or exiting the Community are assigned to one of five destinations: placement
under a customs procedure; admission to a free zone or a free warehouse; re-exportation from the
Community territory; destruction; or abandonment. Customs procedures comprise: release for free
circulation; transit; exportation; customs warehousing; inward processing; processing under
customs control; temporary admission; and outward processing. The latter five are "customs
procedures with an economic impact" (CPEI), because they encourage economic activity on
Community territory. There are 31 free zones, established by the Member States in enclosed areas
located in maritime ports, airports or islands.

5.       During the period under review, the Code and the implementing Commission Regulation
were amended.6 To facilitate the computerization of customs clearance procedures (Box III.1),
supporting documents need no longer be submitted for a computerized declaration, but must be
retained for consultation by the customs authorities. The rules on admission to CPEI and free zones
have been simplified and relaxed for non-sensitive goods.7 Also significant is the good faith
provision for importers, which allows for non-recovery of duties in cases where the amount of duty
legally owed was not entered in the accounts as a result of an error on the part of the customs
authorities, which could not reasonably have been detected by an importer acting in good faith and in
compliance with all of the provisions of the legislation. The provision also indicates how an importer
can meet the standard of good faith, which does not include s    ituations where the exporter has given
incorrect information to the authorities of the exporting country. Internal Community transit
procedures have also been modified by the introduction of the "New Computerised Transit System
(NCTS)" as of 1 July 2001, which is also to apply to operations under the Common Transit
Convention, which links the EC, EFTA Member States, and Poland, Hungary, the Czech Republic,
and the Slovak Republic.8




         4
            Council Regulation 2913/92, as amended, and implemented by Commission Regulation 2454/93, as
amended. See DG Taxation and Customs (1997).
          5
            Defined as comprising the European territories of the Member States (including the territorial waters,
the inland maritime waters and airspace) with certain exceptions: the Faroe Islands and Greenland from the
territory of Denmark; the Island of Heligoland and the territory of Buesingen from the territory of Germany;
the municipalities of Livigno and Campione d'Italia and certain waters of Lake Lugano from the territory of
Italy; Ceuta and Melilla from the territory of Spain.
          Certain European territories outside the territorial frontiers of the Member States are also included in
the Community customs territory. The territory of Germany includes the Austrian territories of Jungholz and
Mittelberg, the territory of France includes the Principality of Monaco, and the territory of Italy includes the
Republic of San Marino; a customs union agreement between the EC and San Marino entered into force on
1 December 1992.
          6
             Regulation 2700/2000. See European Commission Press Release IP/00/1123. For background see
COM(1998)226.
          7
              Customs authority authorization continues to be required for admission to CPEI, but the
administrative procedures are simplified for non-sensitive goods (those not listed in Annex 73 of Commission
Regulation 2454/93) with respect to the assessment of an adverse Community economic impact (i.e. when
interests of Community producers are harmed by entry of duty-free goods). A new option on free zones is a
fence less perimeter, with entry and exit being subject to a customs declaration.
          8
            Regulation 2787/2000. See European Commission Press Release IP/01/153.
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 Box III.1: Customs clearance procedures
 All goods brought into the customs territory of the Community are subject to customs supervision and must
 be presented to customs with a written declaration, consisting of, under normal procedures, the Single
 Administrative Document (SAD), accompanied by pertinent documents. The customs authority may grant
 permission to simplify the completion of formalities and procedures, including by waiving the requirement
 that the goods be presented to customs. The use of a customs agent is not required.
 Under the normal customs clearance procedure, the documents required include the invoice or other
 documents for customs valuation purposes, documents making the consignment eligible for the application of
 a preferential tariff arrangement (e.g. the certificate of origin "Form A" is required for GSP) or for derogation
 from the basic customs tariff regime, and any other document required by the specific legal regulations valid
 for the import of the goods mentioned in the bill of entry (e.g. licence, certificate of conformity, certificate of
 authenticity for certain alcoholic beverages).         The customs authorities may verify the declaration by
 examination of the documents and/or the goods, or may accept it without verification.
 The customs declaration for imported and exported goods must state the customs value, the origin of the
 goods, and the classification of the good, under the Integrated Tariff of the Communities (TARIC) at
 importation or under the Combined Nomenclature (CN) at exportation. Upon request, an importer may
 obtain "binding tariff information" on the tariff classification of a good for the customs administration,
 normally valid for six years; "binding origin information" may also be obtained (since 1997) as a result of
 the Community's implementation of the WTO Agreement on Rules of Origin. The customs declaration forms
 the basis for establishing the amount of the "customs debt", and the basis for the payment of import (or
 export) duties. The amount of import duties must be paid or guaranteed at the time of customs clearance.
 Appeals against decisions of customs authorities are governed by procedures at the Member-State level, first
 to the customs authority and then to national courts, followed by recourse to the European Court of Justice
 under Article 230 of the EC Treaty.
 Source:     WTO (2000a), Vol. 1, pp. 41-42.

(ii)    Customs valuation

6.       There has been no change during the period under review on customs valuation provisions,
which comprise the WTO Agreement on Implementation of Article VII of the GATT 1994 (Customs
Valuation Agreement), and the relevant decisions of the Customs Valuation Committee.9 The Court
of Auditors published a special report in 2001 on customs valuation in relation to the objective of
accuracy and consistency across the customs administrations of the Member States.10 The EU also
participates in the work of the Technical Committee on Customs Valuation of the WCO and accepts
the instruments of that Committee with respect to the Customs Valuation Agreement.

(iii)   Rules of origin

7.      The Community applies two different sets of rules of origin:           non-preferential and
preferential. The non-preferential rules of origin are set out in the Community Customs Code and
implementing Commission Regulation and apply to all non-preferential commercial policy
instruments, such as the tariff and trade defence measures.11 With respect to preferential rules of
origin, which are set out in protocols to the individual preferential trade agreements, or in the
Community instruments establishing preferential trade arrangements (Chapter II(4)(ii) and (iii)), the

        9
           "Decision regarding cases where the customs administrations have reasons to doubt the truth or
accuracy of the declared value", "Decision on the treatment of interest charges in the customs value of imported
goods" and the "Decision on carrier media bearing software".
         10
             Court of Auditors, "Special Report No. 23/2000 concerning valuation of imported goods for customs
purposes (customs valuation), together with the Commission’s replies" (OJ C 84/1 of 14/3/2001).
         11
            WTO document G/RO/N/1.
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EU has more stringent origin requirements to contain the benefit of preferential treatment. A
"standard protocol" on rules of origin applies to the agreements with the CEEC, partners in the EEA
and EFTA agreements, which has inspired certain aspects of the origin rules contained in recent
agreements (e.g., EU-Mexico free-trade agreement, Euro-Med), and preferential arrangements (e.g.,
GSP, and ATM regime).

8.       One aspect of preferential rules of origin is the scope for cumulation, which counts inputs
from the Community or from other partners in a system of regional trade as originating materials.
Bilateral cumulation applies for instance under GSP (donor-country content) and in free-trade
agreements. Diagonal cumulation applies mainly between the EC, the EFTA countries, the CEECs,
and Turkey within the "PanEuropean System of Cumulation". 12 Full cumulation applies within the
EEA, between the EC, the ACP, and the OCT under the Cotonou Agreement, and between the EC and
the Maghreb countries under their respective Euro-Med agreements.

(iv)     Community tariff

9.      The EU has bound 100% of tariff lines in Schedule CXL. The Commission publishes
annually in the Official Journal the most-favoured-nation (MFN) tariff to be applied to imports in the
following calendar year.13 The EU also submits annually to the WTO's Integrated Database (IDB), in
database format, the MFN tariff, and exports and imports, at the eight-digit level of the Combined
Nomenclature (CN). This submission, for 2002, forms the basis of the Secretariat's analysis of the
MFN tariff.

10.       For 2002, the EU's tariff consisted of 10,399 CN eight-digit lines; the simple average applied
rate of duty on all products is estimated at 6.4% (Table III.2), compared with 6.9% for 1999.14 The
simple average tariff on non-agricultural products (WTO definition, excluding petroleum) was 4.1%,
down from 4.5% in 1999; the decline is explained by lower applied tariffs for certain paper and
paperboard, chemical, textile, iron and steel products, and toys.15 On agricultural products, the simple
average tariff was estimated at 16.1% in 2002 down from 17.3% in 1999. The decline is not
attributable to policy changes, but to different estimates resulting from the conversion to ad valorem
equivalents (AVEs) of the non-ad valorem rates applied on 946 lines (44.8% of agricultural product
lines).16




         12
              Notified to the WTO in WT/REG/GEN/N/1. WT/REG/GEN/1 contains questions and replies on the
system. Notes on the meetings of the Committee on Regional Trade Agreements to examine the system are
contained in WT/REG/GEN/M/1, WT/REG/GEN/M/2 and WT/REG/GEN/M/4.
           13
              The analysis in this section is based on the tariff for 2002 contained in Commission Regulation
2031/2001. The tariff indicates the "conventional" rate of duty, assessed on imports from all countries (whether
or not members of the WTO), unless the "autonomous" rate of duty, shown as a footnote, is lower.
           14
              WTO (2000a), Vol. 1, Table III.1, p. 44.
           15
              Annex 1 of the WTO Agreement on Agriculture defines the scope of agriculture as HS Chapters 01
to 24 less fish and fish products (Chapter 3), plus selected items from Chapters 29, 33, 35, 38, 41, 43, 50, 51, 52
and 53.
           16
               These are computed on the basis of average unit values for imports in the categories concerned, and
thus depend on international price movements; an upwards trend, such as in 2000, automatically reduces the
AVE. The estimates do not however factor in the tariff treatment of imports under tariff quotas, which provide
for reduced or duty-free treatment up to a ceiling quota level; estimates refer to out-of-quota imports only.
Other sources of bias in the tariff regime, such as seasonal entry prices for fruits and vegetables, which remain
in place, were reported upon more fully in mid-2000.
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Table III.2
Applied MFN tariff, 2002
                                                           Imports 2000             Simple average               8-digit tariff lines
                                                                                        tariff
                                                   Value                  Share                                                    Share
                                                                                                           Number
                                               (US$ billion)              (%)             (%)                                       (%)

     Total                                         807.4                  100.0            6.4              10,400                 100.0
                       a                            50.3                    6.2          16.1               2,111                  20.3
     WTO Agriculture
     WTO Non-agriculture                           652.7                   80.8           4.1               8,248                  79.3
           (excluding petroleum)
     Petroleum                                     104.3                   12.9           2.8                  41                       0.4

..             Not applicable.
a              Annex 1 of the WTO Agreement on Agriculture defines the scope of agriculture as HS Chapters 01 to 24 less fish and fish
               products (Chapter 3), plus selected items from Chapters 29, 33, 35, 38, 41, 43, 50, 51, 52 and 53.
Note:          Ad valorem equivalents (AVEs) for 2000 were provided by the European Commission. In addition, the Secretariat has used data
               on the ad valorem component of mixed duty lines to complete its data on the EC's 2002 tariff.

Source:        WTO Secretariat calculations, based on European Union online information.             Available at: http://europa.eu.int/eur-
               lex/en/index.html, and information provided by the European Commission.


11.       Tariff peaks (triple the simple average) remain in evidence for meat, dairy products,
processed and unprocessed cereal products, processed fruits and vegetables (Table AIII.1). The range
of applied tariffs, in terms of the minimum and maximum rates, is also more important on agricultural
products (from 0 to 470.8%) than on non-agricultural products (from 0 to 36.6%). The structure of
tariffs in terms of stage of processing continues to show evidence of tariff escalation, notably for food,
beverage and tobacco products, as well as textile products.

12.      The EU grants duty-free or reduced tariff treatment under preferential agreements and
arrangements to most trading partners; exclusively MFN treatment applies to imports of all products
from only nine WTO Members: Australia; Canada; Hong Kong, China; Japan; Republic of Korea;
New Zealand; Singapore; Chinese Taipei; and the United States. The most beneficial treatment is
granted to least developed countries and ACP countries, followed by countries that have concluded
free-trade agreements with the EU, and then developing countries.17

(v)            Indirect taxes

(a)            Overview

13.      All EU Member States apply value-added tax (VAT) and excise taxes to imported products at
rates that, in accordance with the national treatment principle, are the same as for goods supplied
within the territory by a taxable person. Full customs clearance of imported products in a Member
State requires payment of VAT and excise duties, if applicable. Such clearance may be completed
either in the Member State where the product is landed, after which it enters into free circulation, or in
the Member State of destination if the product is placed under a suspensive customs procedure
(usually the external transit procedure). Goods exported outside the territory of the Community are
exempt from indirect taxes.




               17
                    WTO (2000a), Vol. 1, Table III.2, p. 47.
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(b)     VAT

14.      There has been little change in the VAT regimes of Member States during the period under
review.18 As is the case for company taxation, unanimous agreement is required in the Council for
adoption of a Community-wide VAT system. Two new directives were adopted during the period
under review: in June 2001, to remove barriers to administrative cooperation between the Member
States to improve efforts to combat fraud19; and in December 2001, on harmonizing the VAT
requirements for invoicing on internal Community exchanges, including e-commerce transactions.20
As part of its tax strategy for the EU, the Commission will continue to favour legislative actions to
harmonize Member State practices in the area, promote informal coordination mechanisms, as well as
using the infringement procedure.21

(c)     Excise duty

15.      The excise duty regimes of Member States have remained largely unchanged during the
period under review. 22 In February 2002, the Council ado pted new legislation on cigarettes and
manufactured tobacco. Cigarettes in the most popular price category are required to bear a specific
duty of a minimum of 57% of the retail price (inclusive of all taxes)23, and the overall duty must not
be less than € 60 per 1,000.24 The latter level is to be raised to € 64 as from 1 July 2006, with the
exception of two Member States, for which the date is 1 January 2008. The new legislation also
amends the minimum excise levels for cigars, cigarillos, fine-cut tobacco, and other tobacco products.

(vi)    Prohibitions, restrictions, surveillance, and licensing requirements

(a)     Common Foreign and Security Policy (CFSP)

16.       Since the entry into force of the Treaty on European Union in 1993, the EU adopts, through
common positions, the measures on trade and economic relations provided for by resolutions of the
United Nations Security Council, which may include embargoes falling within the competence of the
Community. At the time of the last Trade Policy Review of mid 2000, the EU had reduced trade and
economic relations with Iraq and the Federal Republic of Yugoslavia (Serbia and Montenegro), and
instituted various embargoes on exports (section (2)(ii)). During the period under review, the
restrictive measures affecting the Federal Republic of Yugoslavia were lifted following the
presidential elections of 24 September 2000.25 The EU also implemented United Nations Security
Council Resolution 1343 setting out measures to be imposed against Liberia, which include the
prohibition of direct or indirect imports of all rough diamonds into the Community.26 The EU and the
Member States are participating in international efforts to combat the illicit traffic in diamonds.27




        18
         Directive 77/388/EEC, as amended. See WTO (2000a), Vol. 1, Table III.3, p. 49.
        19
         Council Directive 2001/44/EC.
      20
         Council Directive 2001/115/EC.
      21
         COM(2001)260. See European Commission MEMO/01/193.
      22
         DG Taxation and Customs (2001).
      23
           Council Directive 2002/10/EC. See European Commission Press Release            IP/01/87 and
MEMO/01/87.
        25
           Decision 2000/599/CFSP.
        26
           Council Regulation 1146/2001.
        27
           Decision 2001/758/CFSP.
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(b)     Protection of the consumer, the environment or animal welfare

17.      A general safety requirement applies to the placement of consumable products on the
Community market, except for those for which specific product regulations or standards have been
established at Community or Member State level (section (viii)), such as food products.28 Member
States may invoke this requirement to take action in emergency situations, and Community-wide
measures may be taken, at the initiative of the Commission, under the RAPEX system for non-food
products. At the time of the last Trade Policy Review of the EU, the Commission had decided to ban
the placement on the market of toys and childcare articles, intended to be placed in the mouth of
children under three years of age, made of soft PVC containing certain phthalates, as from 1 January
2000 29; this Decision has been extended continuously during the period under review, most recently
until 20 February 2002.30 For food products, the EU adopted a new instrument for food safety in
February 2002 (section (viii)), which was first used on 27 March 2002 to sus pend the placing on the
Community market and import of jelly confectionary containing the food additive E 425 konjac.31

18.     The placement and use of dangerous substances on the Community market, including by
importation, is strictly regulated to protect the public; the list of covered substances is regularly up-
dated for technical progress.32 In addition, during the period under review, bans affecting creosote
and hexachloroethane were announced, and are to be made effective on 30 June 2003. The ban on
remaining uses of chrysotile asbestos, which had been noted in the last Review of the EU and which is
to be made effective by 2005, was unsuccessfully challenged by Canada under the WTO dispute
settlement procedures.33

19.      Through a common system of notification and information for imports from and exports to
third countries, the EU controls the trade of certain chemicals that are banned or severely restricted on
account of their effects on human health and the environment; the Community applies the
international notification and prior informed consent (PIC) procedure established by the United
Nations Environment Programme (UNEP) and the Food and Agriculture Organization (FAO).34

20.      The EU applies regulations to trade in wild fauna and flora to implement the provisions of the
Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES),
including by prohibitions and licensing requirements, which are regularly updated in the light of
decisions made under CITES.35 The Community has implemented a series of trade measures related
to international resource management and conservation agreements such as the International
Commission for the Conservation of Atlantic Tunas (ICCAT) or the Commission for the Conservation
of Antarctic Marine Living Resources C    CAMLR. The measures include bans on imports of Atlantic
bluefin tuna36 and swordfish37 from countries ICCAT has identified as fishing in a manner prejudicial
to the organization's measures to conserve the species, and the compulsory presentation of a statistical
        28
             Council Directive 2001/95/EC
        29
             Commission Decision 1999/815/EC.
          30
             Commission Decision 2001/804/EC.
          31
             Commission Decision 2002/247/EC.
          32
             Council Directive 76/769/EEC, as amended.
          33
             WTO document WT/DS135.
          34
             Council Regulation 2455/92, as amended.
          35
             Council Regulation 338/97, as amended. Commission Regulation 2087/2001 contains the latest list
of restrictions. Other measures for species protection include a prohibition on imports of whales and other
cetacean products for commercial purposes (Council Regulation 348/81), and a prohibition on imports of skins
of seal pups, except for those harvested by Inuit using traditional techniques (Council Directive 83/129/EEC, as
amended).
          36
             Council Regulation (EC) 2092/2000, 28 September 2000.
          37
             Council Regulation (EC) 2093/2000, 28 September 2000.
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document when Atlantic bluefin tuna is imported into the territory of a Contracting Party of ICCAT.38
The Council adopted a regulation in May 2001 transposing into Community law measures to
document catches of Antarctic and Patagonian toothfish (Dissostichus spp) established by the
CCAMLR.39 The EC is of the view that the measures are fully compatible with its obligations under
Article XX of GATT 1994.40

21.      The EU implemented the Montreal Protocol as from 1988, as well as the subsequent
amendments, to control the production, importation, exportation, use and recovery of ozone -depleting
substances, including by prohibitions and licensing requirements. This framework was replaced
during the period under review with changes designed to broaden the coverage of ozone -depleting
substances subject to disciplines.41 The EU implemented the Basel Convention as from 1994 to
control the export, import, and disposal of hazardous wastes 42, and controls by prohibitions and
licensing requirements the movement of radioactive waste.43

22.      The EU prohibited the use of leg-hold traps in the Community as from 1995 and, as from
1996, the importation of pelts of certain wild species (e.g. beaver, otter, mink) from countries that
permit leg-hold traps or trapping methods that do not meet international humane trapping standards;
in particular, those agreed in 1998 with Canada, the Russian Federation, and the United States, in
bilateral agreements. Imports of covered species from covered countries are subject to certification. 44

(c)     Textiles and clothing products

23.       The general principle of the EU's regime for imports is "liberalization of imports, namely the
absence of any quantitative restrictions", although the EC retains the right to apply surveillance or
safeguard measures (section (vii)), as well as trade defence measures (section (xi)).45 This regime
applies to imports of all products from WTO Members except for textile and clothing products that
are not yet integrated into GATT 1994.46 A special regime applies to certain third countries
(section (d)), and imports of textile and clothing products are subject to restrictions either under
bilateral agreements or on an autonomous basis (see below).

24.      The main development with respect to textile and clothing products during the period under
review was the implementation by the EU on 1 January 2002 of Stage III of its integration programme
under the WTO Agreement on Textiles and Clothing (ATC). This stage concerned 18.08% of 1990
imports of 3.9 million tonnes, bringing to 51.39% the imports integrated into GATT 1994 since
1995.47 It included the removal of quantitative restrictions on imports of 11 product categories
(Table III.3), affecting Hong Kong, China; India; Indonesia; Macao; the Philippines; Republic of
Korea; Sri Lanka; and Thailand. Quota growth rates of between 0.18% and 16.37% apply to
remaining restrictions; higher growth rates are applied to imports from Peru and Sri Lanka, as small
suppliers. All other textile and clothing products are to be integrated on 31 December 2004.
        38
             Council Regulations (EEC) 858/94 and (EC) 1446/99.
        39
              Council Regulation (EC) No 1035/2001, 22 May 2001 establishing a catch-documentation scheme
for Dissostichus spp.
          40
             See, for example, COM(2000)344.
          41
             Council Regulation 2037/2000, to replace Council Regulation 3093/94.
          42
             Council Regulation 259/1993, as amended.
          43
             Council Directive 92/3/EURATOM.
          44
               Council Regulation 3254/91. The list of countries from which importation is permitted was
established by Council Decision 97/602/EC, as amended, and certification was implemented by Commission
Regulation 35/97.
          45
             Council Regulation 3285/94, as amended.
          46
             Council Regulation 3030/1993, as amended.
          47
             WTO document G/TMB/N/363 and Add.1.
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Table III.3
EC’s liberalization of quantitative restrictions on imports of textile and clothing products
                     Product categories subject to limits                              Product categories not subject to limits

 1990                1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, 16, 17, 18,        0A, 34, 38A, 38B, 40, 41, 42, 43, 47, 48, 49, 51, 53, 54, 55,
                     19, 20, 21, 22, 23, 24, 26, 27, 28, 29, 31, 32, 33, 35,           56, 58, 59, 60, 62, 63, 65, 66, 69, 75, 76, 84, 85, 87, 88, 90,
                     36, 37, 39, 46, 50, 61, 67, 68, 70, 72, 73, 74, 77, 78,           93, 94, 95, 96, 98, 99, 101, 109, 110, 112, 113, 114, 115,
                     83, 86, 91, 97, 100, 111, 135                                     117, 118, 120, 121, 122, 123, 124, 125A, 125B, 126, 127A,
                                                                                       127B, 128, 129, 130, 130A, 130B, 131, 132, 133, 134, 136,
                                                                                       137, 138, 139, 140, 141, 142, 144, 145, 146A, 146B, 146C,
                                                                                       147, 148A, 148B, 149, 150, 151A, 151B, 152, 153, 154,
                                                                                       156, 157, 159, 160, 161
 Product categories integrated
 Stage I             None                                                              69, 75, 85, 99, 134, 148A, 149, 150, 153
 Stage II            19, 77, 46, 61, 67, 70, 72, 74, 86, 91, 100, 111                  41, 58, 65, 76, 84, 87, 88, 96, 110, 124, 126
 Stage III           10, 18, 21, 24, 27, 32, 33, 36, 37, 68, 73                        0, 34, 38, 40, 42, 43, 47, 48, 49, 53, 54, 55, 56, 59, 60, 62,
                                                                                       63, 66, 93, 95, 98, 101, 109, 112, 113, 114, 120, 123, 125,
                                                                                       127, 129, 131, 133, 137, 138, 140, 141, 142, 144, 145, 146,
                                                                                       151, 152, 161
 Stage IV            1, 2, 3, 4, 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 17, 20, 22,        51, 90, 115, 117, 118, 121, 122, 128, 130, 130A, 130B, 132,
                     23, 26, 28, 29, 31, 35, 39, 50, 78, 83, 97                        136, 139, 146C, 147, 148B, 154, 156, 157, 159, 160

Note:        See Table AIII.2 for the definitions of product categories and the country coverage of EC trade restrictions.

Source:      WTO documents G/TMB/N/60; G/TMB/N/1, Corr.2 and Corr.2/Suppl.1; G/TMB/N/207, Add.1 and Corr.1;
             G/TMB/N/363 and Add.1.

25.       The share of restricted 1990 imports concerned by Stage III of the EU’s integration
programme was 15%, three times more than the share concerned by Stage II integration (no restricted
imports were integrated in Stage I). The main product category concerned by the liberalization in
2002 was nightwear. This brings to 20% the share of 1990 restricted imports on which the EU has
eliminated the quantitative restrictions, leaving 80% for the final elimination scheduled for the end of
2004. These figures tend to show that the EU has back-loaded the liberalization of quantitative
restrictions required under the ATC to the end of the transition period, while meeting the letter of its
commitments on integration of the sector into GATT 1994.

26.      As of 1 January 2002, the EU thus continues to maintain quotas carried over into the WTO
from the longstanding Multi-Fibre Arrangement on imports from Argentina; Brazil; Hong Kong,
China; India; Indonesia; Republic of Korea; Macao; Malaysia; Pakistan; Peru; the Philippines;
Singapore; Sri Lanka (suspended); and Thailand (Table AIII.2).48        Consultation levels were
established with Egypt.

27.     During the period under review, the EU has continued to conclude memoranda of
understanding with individual exporters of textiles and clothing products, providing for the reciprocal
exchange of concessions on market access for textile and clothing products. Following those agreed
with India and Pakistan in 199449, two more were agreed in 2001, with Sri Lanka and with Pakistan.50
Other memoranda are under negotiation; the Commission anticipates that these will form the basis for
             48
            Council Regulation 3030/93, as amended.
             49
            "Memorandum of Understanding between the EC and Pakistan on arrangements in the area of market
access for textiles and clothing products" (OJ L 15 of 27/6/1996) and "Memorandum of Understanding between
the EC and India on arrangements in the area of market access for textiles and clothing products" (OJ L 153 of
27/6/1996).
         50
            "Memorandum of Understanding between the EC and Pakistan on arrangements in the area of market
access for textiles and clothing products" (OJ L 80 of 20/3/2001), and "Memorandum of Understanding between
the EC and Sri Lanka on arrangements in the area of market access for textiles and clothing products" (OJ L 80
of 20/3/2001).
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market-access improvements made by the EU until the end of the transition period for full integration
of the textiles and clothing sector into GATT 1994.51 The memorandum concluded with Sri Lanka
provides for the binding of tariffs on textile and clothing products in the country’s GATT 1994
Schedule, and their reduction, as well as commitments on non-tariff measures; similar engagements
have been made by Pakistan. In exchange, the EU has suspended the application of the quotas on
imports from Sri Lanka, while increasing the base quota level for Pakistan by 15%, to be carried over
until 2004.

28.       With respect to China, which acceded to the WTO in late 2001, the EU maintains quotas under
the ATC carried over from the MFA52, as well as other quotas (linen, silk, and ramie).53 With respect
to the former, the timetable for the elimination of quotas by 1 January 2005 is presumed to apply.
With respect to the latter, the EU liberalized certain quo tas following China’s accession, and intends to
remove the remainder of the quotas no later than 1 January 2005 depending on China’s progress in
removing state trading in silk products, as agreed between the parties in their bilateral agreement on
China’s accession to the WTO. With respect to Chinese Taipei, which also acceded to the WTO in late
2001, the EU removed the quantitative restrictions on products already integrated into GATT 1994 in
the course of Stages I, II, and III of its integration programme, and will remove remaining restrictions
no later than 1 January 2005.

29.      The EU also maintains quotas on imports from Belarus, Uzbekistan and Viet Nam under
bilateral agreements.54 The EU applies quantitative restrictions on an autonomous basis on imports
from the Federal Republic of Yugoslavia (Serbia and Montenegro) and the Democratic People's
Republic of Korea.55       Surveillance of imports of textile and clothing products under the
double-checking system applies under agreements with Armenia, Azerbaijan, Bangladesh, Belarus,
Bosnia and Herzegovina, Cambodia, Croatia, Former Yugoslav Republic of Macedonia (FYROM),
Kazakhstan, Kyrgyzstan, Laos, Moldova, Mongolia, Nepal, Russian Federation, Tajikistan,
Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, and Viet Nam.56

30.      The EU also maintains quantitative restrictions on imports of goods resulting from economic
outward processing traffic (OPT) arrangements.57            These arrangements are available only to
established Community producers and have the objective of maintaining industrial activity in the
Community. A producer must obtain prior authorization, which is subject to conditions.58 An annual
allocation for imports under OPT may be granted up to a maximum of 50% of the value of production
in the Community. In practice, they have been used to import clothing products into the EU after
textiles exported from the EU have been worked or processed in third countries. In 2000 and 2001,
allocations of OPT quotas were made to Belarus, China, Federal Republic of Yugoslavia, India,
Indonesia, Macao, Malaysia, Pakistan, the Philippines, Singapore, Thailand, and Viet Nam.




        51
             WTO document G/TMB/N/407/Add.1.
        52
             WTO document G/TMB/N/60/Add.5.
          53
             WTO document G/TMB/N/64/Add.2.
          54
             Council Regulation 3030/93, as amended.
          55
             Council Regulation 517/94, as amended, and implemented by Commission Regulation 3168/1994.
          56
             WTO document G/LIC/N/3/EEC/4.
          57
             Council Regulation 3036/94, implemented by Commission Regulation 3017/95.
          58
             According to Article 2(2)(a) of Council Regulation 3036/94, "that person must: manufacture, in the
Community, products which are similar to, and at the same stage of manufacturing as, the compensating
products in respect of which the application for the arrangement is made, and perform in his own factory, within
the Community, the main production processes on those products, at least sewing and assembly, or knitting in
the case of fully fashioned garments obtained from yarn".
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(d)        Special regime for certain third countries

31.      A special regime applies to the EU's import arrangements with certain countries: Albania,
Armenia, Azerbaijan, Belarus, China, Georgia, Kazakhstan, Democratic People's Republic of Korea,
Kyrgyzstan, Moldova, Mongolia, Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan,
and Viet Nam.59 This regime applies to imports of all products with the exception of textile and
clothing products (see above), and provides for safeguard and surveillance measures of specific
application to these countries.

32.      The regime also provides for quotas on imports from China of footwear, tableware and
kitchenware (ceramic, porcelain and china), as well as surveillance on certain products. Upon the
accession of China to the WTO, the EU made the commitment to progressively liberalize the quotas
and remove them by 2005.60 Products from China that are subject to surveillance include glassware,
toys, footwear, and bicycles.61

33.      The EU maintains quotas on certain steel products imported from Kazakhstan, the Russian
Federation, and the Ukraine, and maintains surveillance on imports of certain steel products from
these origins.

(e)        Licensing62

34.     The Community requires import licences for products subject to quantitative restrictions,
safeguard measures (section (vii)), or import surveillance. In addition to imports of textiles and
clothing products subject to quotas, surveillance, or consultation (see above), the Community requires
licensing of imports from WTO Members of certain agricultural products subject to common market
organization – cereals, rice, beef and veal, sheepmeat and goatmeat, milk and milk products, sugar,
processed fruit and vegetables, bananas, oil and fats, seeds, and wine – which, according to the
Commission, serves a statistical purpose and is granted automatically. A licence is also required to
import within a tariff quota, which applies to a large number of agricultural products.63

35.      Automatic licensing applies to imports from the Czech Republic, the Former Yugoslav
Republic of Macedonia (FYROM), Poland, and the Slovak Republic of certain ECSC and EC steel
products subject to surveillance; under the double-checking system, an export document is required.
During the period under review, the EU reintroduced the prior Community surveillance that applied in
2000 to imports of certain iron and steel products covered by the ECSC and EC Treaties from all third
countries, except for EFTA Member States, parties to the EEA, and Turkey. 64 The Commission
claims surveillance constitutes a monitoring system intended to improve transparency of import trends
of the products concerned, and not to restrict trade.

(vii)      Safeguard measures

36.    The EU has two safeguard regimes for imports from WTO Members: Article XIX of GATT
1994 and the relevant WTO Agreement65; and, for agricultural products, the special safeguard

           59
                Council Regulation 517/94, as amended, and implemented by Commission Regulation 3168/94, as
amended.
           60
              Annex 7 of WTO document WT/L/432.
           61
              Annex II of Council Regulation 1139/98.
           62
              WTO document G/LIC/N /3/EEC/4.
           63
              WTO document G/LIC/N/3/EEC/4/Add.1.
           64
              Commission Regulation 2727/1999.
           65
              Council Regulation 3285/94.
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mechanism of the WTO Agreement on Agriculture for products noted as "SSG" in Schedule CXL.66
For China, specific safeguard regimes have been incorporated into its Protocol of Accession for
textiles and clothing products67, and for other products.68 The EU applies a separate safeguard regime
to certain third countries not Members of the WTO (see above).

37.       The Commission initiated a safeguard investigation on 21 steel products on 27 March 2002 69,
and took provisional action on the same date on 15 steel products in response to the U.S. safeguard
action on imports of steel, effective on 20 March 200270; a dispute settlement proceeding was also
initiated on 13 March 2002.71 Supplementary duties of between 14.9% and 26% are to be triggered
by volumes rising above levels of trade set at 2001 levels (the average reached for 1999-01 plus 10%),
to prevent diversion of trade from the U.S. market onto the EU market. In addition, the Commission
proposed on 19 April 2002 that the Council agree additional duties of between 8% and 100% on
products imported from the United States, to match the amount of duties to be collected on
Community exports of the products covered by the U.S. safeguard measure (€ 626 million), as "re-
balancing" measures, given the failure of the two parties to agree compensation for the Article XIX
measure on steel imposed by the United States.72

38.      The EU continues to make use of the special safeguard mechanism under the WTO
Agreement on Agriculture. This mechanism permits the imposition of "snap-back" tariffs, which the
EU may invoke either when import prices fall below trigger prices, or if import volumes rise above
trigger volumes.73 During the period under review, the EU invoked, for the marketing year 1999-00,
the price-based SSG for poultry meat and certain sugar products, and made operational the volume-
based SSG for tomatoes, cucumbers, artichokes, courgettes, oranges, clementines, mandarins,
satsumas, wilkings and similar citrus fruits, lemons, apples, table grapes, and pears.74

(viii)   Product regulations and standards 75

(a)      Overview

39.      In order for a product to be placed on the market of a Member State, it must comply with the
relevant regulations, where they exist, to meet health, safety, and environmental objectives,
established by means of conformity assessment procedures; in all other cases, a general product
safety requirement applies.76 Other general requirements for all products include: protection against
misleading advertising and dishonest provisions in contracts with consumers, liability for defective
products, including for primary agricultural products, and correct indication of prices.77

40.     Where they exist, regulations lay down product characteristics or their related processes and
production methods, and may include or deal with terminology, symbols, packaging, marking or

         66
            WTO document G/SG/N/1/EEC/1.
         67
            WTO document WT/ACC/CHN/49.
         68
            WTO document WT/L/432, section 16.
         69
            OJ C 77 of 28/3/2002.
         70
            Commission Regulation 560/2002. See European Commission MEMO/02/67.
         71
             WTO document WT/DS248. See also complaints initiated by Japan (WT/DS249), Republic of
Korea (WT/DS251), China (WT/DS252), Switzerland (WT/DS253), and Norway (WT/DS254).
         72
            COM(2002)202.
         73
            WTO document G/AG/N/EEC/2.
         74
            WTO document G/AG/N/EEC/33.
         75
             According to Annex 1 of the WTO Agreement on Technical Barriers to Trade (TBT Agreement),
compliance with a technical regulation is mandatory, while compliance with a standard is voluntary.
         76
            Council Directive 2001/95/EC.
         77
            Council Directives 84/450/EEC, 85/374/EEC and 98/6/EEC, respectively.
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labelling requirements as they apply to a product, process or production method. Fulfilment of these
requirements is established through conformity assessment procedures.          Such regulations are
developed at Community level ("harmonized" areas) for EU-wide application, or at national level
("non-harmonized" areas); as was noted at the time of the previous Review, exporters benefit from
Community harmonization efforts, in principle, as one set of regulations replaces 15 potentially
different sets. Non-harmonized products account for about 21% of the total.78

41.      Product regulations at Community level are of two main types: "old approach" product-
specific regulation lays down detailed and specific technical requirements, and applies in particular to
motor vehicles, chemicals, food products, and pharmaceutical products; "new-approach" regulations,
which apply to a large number of areas, limit mandatory obligations to essential requirements, defined
to meet health, safety, and environmental objectives, while leaving specific technical solutions to
meet these requirements to the market, either through voluntary standards or a manufacturer's own
solution. 79 New approach directives apply to the relevant products placed and put into service on the
Community market for the first time, including imported products. The person placing the product on
the market assumes responsibility for compliance with the relevant legislation. The manufacturer
must affix the "CE" mark to the product to indicate compliance with essential requirements, which has
been established by the prescribed conformity assessment procedures, including, among others, the
manufacturer’s declaration of conformity, without which the product may not be placed on the EU
market. European standard-setting bodies have developed harmonized standards for new approach
directives, the application of which leads to a presumption of conformity with essential requirements.

42.     In non-harmonized areas, Member States may legislate but are required to notify the
Commission of draft national measures to prevent unjustified restrictions to trade.80 Furthermore,
Member States are required to grant mutual recognition to products lawfully produced and marketed
in another Member State, subject to protection of overriding public interests.81 In the latter case,
departure from mutual recognition must be both necessary and proportionate. The Commission has
noted the "economically significant impact" of problems encountered with the application of the




         78
             COM(2001)736.
         79
              New approach directives concern: low voltage equipment; simple pressure vessels; safety of toys;
construction products;        electromagnetic compatibility;        machinery;    personal protective equipment; non-
automatic weighing instruments; active implantable medical devices; appliances burning gaseous fuels; energy
requirement for new hot-water boilers fired with liquid or gaseous fuels; explosives for civil uses; medical
devices; equipment for use in explosive atmospheres (ATEX); recreational craft; packaging and packaging
waste; lifts; interoperability of trans-European high-speed rail system; energy efficiency requirements for
household electric refrigerators, freezers and combinations thereof; marine equipment; pressure equipment; in
vitro diagnostic medical devices; and radio equipment and telecommunications terminal equipment and the
mutual recognition of their conformity. See online information. Available at: http://www.newapproach.org/.
          80
              Directive 98/34/EC. Decision 3052/95/EC allows the Commission to be informed of measures
already taken and implemented that derogate from the principle of the free movement of goods within the
Community. The Commission has organized sector-specific round tables on mutual recognition with respect to
food products and industrial products.
          81
             According to the 1979 "Cassis de Dijon" ruling of the European Court of Justice, discussed in a
Commission Communication (OJ C 256, 3/10/1980), free movement of goods between Member States is the
core principle, and accordingly any product lawfully produced and marketed in one Member State must, in
principle, be admitted to the market of any other Member State. Article 30 of the EC Treaty provides for
justified prohibitions or restrictions of imports, exports or goods in transit on the grounds of the protection of
health and life of humans, animals or plants provided that such prohibitions or restrictions do not constitute a
means of arbitrary discrimination or a disguised restriction on trade.
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principle, and estimated the upper bound of the trade gains from perfect application of mutual
recognition at 1.8% of EU GDP.82

43.      Major developments in the period since the last Review of the EU include the adoption in
February 2002 of a framework of general principles for food law, on which all future food law will be
based, and against which all existing food law will be reviewed.83 As was noted at the time of the
previous Review, a number of food scares at the Community level, as well as controversies over the
placement of novel foods on the market, had led to a debate on the issue of food safety. 84 The EU also
established on 28 January 2002 the European Food Safety Authority (EFSA), to provide scientific
input to the Community decision-making process, to become operational as soon as possible in 2002.
Another major development concerns the issue of managing waste more effectively, as 1.3 million
tonnes are generated each year, with each type of waste posing specific environmental concerns.85
The Commission is proposing an "integrated product policy", which concerns the strategy on the
sustainable use of resources and on waste recycling, and will issue a White Paper.

44.      Regulatory activities in both harmonized and non-harmonized areas are subject, where
appropriate, to the obligations assumed by the EU and the Member States under the WTO Agreement
on Technical Barriers to Trade (TBT Agreement) and the WTO Agreement on the Application of
Sanitary and Phytosanitary Measures (SPS Agreement). The EU or a Member State is to publish draft
and final legislation, notify the WTO of draft regulations that may "have a significant effect on trade
of other Members", and generally provide a 60-day period for comments; in 2000 and 2001, the EU
and its Member States notified the WTO of 148 and 110 measures under the TBT Agreement,
respectively (Table III.4);      additional measures were notified to the SPS Committee.            The
Commission has also established enquiry points for harmonized areas, and Member States have
enquiry points in their domains. The European standard-setting organizations and their national
committees have each accepted the TBT Code of Good Practice for the Preparation, Adoption and
Application of Standards.
Table III.4
WTO notifications of technical regulations by the EU and Member States, 1995-01

                                                                        MEMBERSa

Year       Total    EU     B      DK      D      EL      E       F      IR            I   L       NL       A   P        F   S    UK

1995        123     31     17      28     2       0      4       1      0         0           0    33      0   0        4   5     0
1996        123     46     13      15     3       0      7       2      0         0           0        0   0   0        7   30    0
1997        437     20     48      23     3       0      5      15      1         0           1   287      2   0        5   22    5
1998        276     36     49      40     3       0      9      20      0         0           2    91      1   0        5   18    2
1999        185     34     23      27     3       0      9      21      0         0           1    48      2   0        3   9     5
2000        148     16     19      25     0       0      6       7      0         0           0    46      0   0        5   15    9
2001        110      7     26       7     0       0      9       9      0         0           0    40      0   0        3   8     1

a         B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;            NL:
          The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.

Source:   WTO Secretariat.




          82
             COM(2001)736.
          83
             Regulation 178/2002.
          84
             COM(2000)1.
          85
             European Commission SPEECH/01/302.
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(b)     Regulatory developments

Chemical products

45.     During the period under review, the Commission proposed:               the simplification and
environmental upgrading of legislation on detergents, as well as new mandatory labelling
requirements86; and the simplification of legislation on fertilizers.87 The EU adopted new legislation
on the manufacture and the placing on the market of drug precursors.88

46.      The Commission launched a debate, in February 2001 on the future policy on chemicals,
concerned with meeting high standards of health and consumer protection, the efficient functioning of
the Internal Market and stimulating innovation in the sector in the context of the objective of
sustainable development.89 The Commission notes the weaknesses of the existing system with respect
to risk assessment of the many chemicals on the EU market, and proposes the reversal of
responsibility from public authorities to industry for testing and risk assessment of chemicals. A new
system of registration, evaluation, and authorization/restriction for new (post-1981) and existing
(pre-1981) chemical substances (REACH) would be phased in over a period of 11 years. The
REACH System will apply to producers and importers of substances and to downstream industries.

Pharmaceutical products

47.     During the period under review, the EU adopted Community Codes on medicines intended
for human use and for veterinary use, consolidating the bodies of legislation in these areas.90 A
Community authorization permits placement on the Community market of medicinal products,
including imported products, and requires a scientific evaluation by the European Agency for the
Evaluation of Medicinal Products (EMA).91 Such an authorization is required for placement on the
market of certain novel medicinal products (e.g., recombinant DNA technology), and may be
requested for any other new medicinal product for human or veterinary use, as an alternative to
obtaining marketing authorization in each Member State, noting that the principle of mutual
recognition applies in intra-Community exchanges. In November 2001, the Commission proposed to
modify the framework for the single Community authorisation.92 In addition to speedier procedures,
in principle, the proposal clarifies the authorization procedures for generics, and for medicinal
products containing or produced from GMOs.

Food

48.      The new framework for food law, adopted by the EU in 2002, harmonizes the concepts,
principles and procedures to be used by Member States by 1 January 2005, and all existing law is to
be reviewed by 1 January 2007; harmonization of food law as such is not implied. Scientific
evidence is to underpin the food safety policy, with the precautionary principle to be used where
appropriate.93 The primary task of the new European Food Safety Authority (EFSA) is to provide
scientific advice on food safety issues to the Commission and, upon request, to Member States;
several Member States have established their own capacity in this area during the period under review

        86
           European Commission Press Release IP/01/1158.
        87
           COM(2001)508. See European Commission Press Release IP/01/1275.
        88
           Directive 92/109/EEC, as amended by Directive 2001/8/EC.
        89
           COM(2001)88. See European Commission Press Release IP/01/201.
        90
           Directives 2001/83/EC and 2001/82/EC.
        91
           Regulation 2309/93.
        92
           COM(2001)404.
        93
           COM(2000)1.
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(e.g., AFSA in France). The establishment of EFSA is intended to respond to consumer concerns on
the independence of the process by which food law is developed and monitored at Community level,
and to create additional capacity for scientific assessment.94 EFSA is also to administer the
Commission system for the rapid exchange of information among the Member States in the event of a
serious and immediate risk to the health and safety of consumers from foodstuffs.

49.      Changes were also made to the legislative framework for the placement on the market of
genetically modified organisms (GMOs) and products that may contain GMOs or GMO derivatives,
which was noted to be an area of controversy at the time of the last review, both within the EU and
between the EU and the United States.95 Although 18 authorizations for placement on the Community
market had been issued in the course of the 1990s, the process of marketing new products throughout
the Member States was effectively frozen since 1998. The new legislation tightens authorization
procedures, which are to be time-bound, and provides for mandatory labelling; however, certain
Member States have continued to oppose the licensing of GMOs, pending the introduction of
traceability on labels (see below).96 The Community is also considering amendments to its legislation
banning the use of hormones as growth promoters (see below) with the objective of bringing the
legislation into compliance with WTO rulings on the matter.97

Industrial products

50.      During the period under review, the EU revised downwards the noise and emission limits for
pleasure boats98, and new lower emission limits were agreed for non-road machinery.99 The
Commission has issued a number of proposals to simplify or update for technological progress certain
directives on product regulations. Simplification and enhanced scope are being proposed for a new
machinery directive.100 Simplification and upgrading has been proposed for measuring instruments.101

Labelling

51.      At the time of the last Review of the EU in mid 2000, the Community had mandatory
labelling requirements for: health warnings on tobacco products; alcoholic content of beverages;
cosmetic products; energy consumption of household appliances; materials used in the main
components of footwear for sale to a final consumer; textile names; foods and food ingredients
produced from GMOs (novel foods); traceability of beef and beef products; and medicinal products
for human use.102 During the period under review, the EU adopted a new policy on tobacco products,
concerning their manufacture, presentation and sale, including labelling, to be implemented by
30 September 2002; the rules also apply to Community tobacco products sold in third countries as



         94
              European Commission SPEECH/00/425 and MEMO/01/441.
         95
               Directive 90/220/EEC, as amended. See European Commission MEMO/00/43 and WTO(2000),
Box III.1.
         96
            Financial Times, 16 February 2001.
         97
            Directive 96/22/EC.
         98
            European Commission Press Release IP/01/512.
         99
            European Commission Press Release IP/00/1497.
         100
             COM(2000)899. European Commission Press Release IP/01/184.
         101
             COM(2000)566. European Commission Press Release IP/01/1015.
         102
             Directive 89/622/EEC, as amended; Directive 76/776/EEC; Directive 76/768/EEC, as amended;
Directive 92/75/EEC; Directive 94/11/EC; Directive 96/74/EC, as amended; Directive 258/97; Regulation
1139/98; Regulation 820/97 provided for a beef-labelling scheme that was optional up until the end of 1999 and
became compulsory on 1 January 2000 for products of Community or imported origin; and Directive
92/27/EEC.
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from 2007.103 The EU adopted stricter labelling requirements for beef.104 The Commission also
adopted mandatory labelling requirements for eggs105, in line with the minimum standards for the
protection of laying hens.106 A mandatory labelling requirement has been proposed for animal-tested
cosmetics until the entry into force of a ban on animal -tested cosmetics, which would apply to all such
products, including of imported origin. 107 The Commission has also proposed comprehensive
traceability labelling requirements for products containing, or produced, from GMOs.108

52.      A voluntary European eco-label (the Flower) award scheme has been in place since 1992, and
was revised in 2000; certain Member States have established their own eco-labelling system (e.g.,
Germany’s Die Grune Punkt).109 The label may be awarded to products that meet the ecological
criteria established by the Commission. These criteria take into account the life cycle of the product,
are normally valid for three years, and are then revised. Public consultations accompany the
establishment and revision of criteria, which are open to participation by non-EU parties. Companies
from developing countries benefit from a 25% reduction in fees, as well as small and medium-sized
enterprises (both reductions are cumulative) .110 To date, 100 companies use the logo.

Waste

53.       With respect to product-related waste management, during the period under review the EU
adopted the directive on end-of-life vehicles for transposition into national law by 21 April 2002111 ;
the Commission issued a proposal on waste electronic and electrical equipment (WEEE) and on
restricting use of certain hazardous substances in such equipment 112 ; it proposed a revision to the
packaging waste directive 113; and launched a consultation on managing PVC (e.g., plastics from
vehicles).114 Both the end-of-life vehicles directive and the proposed WEEE directive depart from the
previous practice of delegating waste management to public authorities by introducing "producer
responsibility" for the treatment, recovery, and disposal of products, based on the argument that it will
act as a financial incentive for producers to design their products to facilitate waste management,
particularly recycling. Further developments may result from the "Integrated Product Policy" under
elaboration by the Commission.

54.  According to the end-of-life vehicles directive, producers of vehicles, imported or
Community-produced, must either take back vehicles or finance the cost of treatment facilities to

        103
               Directive 2001/37/EC, to replace Directives 89/622/EEC and 90/239/EEC, and the 1998 Directive
on advertising that was annulled by the European Court of Justice.
          104
               Regulation 1760/2000. See European Commission Press Release IP/00/799. See European
Commission Press Release IP/01/1913 for tighter rules applicable from 1 January 2002.
          105
               Commission Regulation 1651/2001 states that egg packs must be labelled as either "free range
eggs", "barn eggs" or "eggs from caged hens", and that eggs must be labelled as either "free", "barn" or "cage".
The instrument also clarifies the minimum production requirements for each category of egg.
          106
              Directive 1999/74/EC.
          107
              European Commission Press Release IP/00/335.
          108
              European Commission Press Release IP/01/1095.
          109
              Regulation 1980/2000. The EU Eco-labelling Board (EUEB) has been established to develop the
ecological criteria, and assessment and verification requirements, and to promote the eco-label;         non-EU
countries have the status of observers.
          110
              European Union online information. Available at: http://europa.eu.int/environment/ecolabel
          111
              Directive 2000/53/EC.
          112
               COM(2000)347. See European Commission Press Release IP/00/602. Also related are the
Commission initiatives on the free movement of green electrical goods (see European Commission Press
Release IP/01/313).
          113
              COM(2001)729. See European Commission Press Release IP/01/1773.
          114
              COM(2000)469. See European Commission MEMO/00/46.
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process end-of-life vehicles, by 2007 for vehicles placed on the market prior to 2002, and as of July
2002 for vehicles placed on the market at that date or later. By 2005, vehicles on the Community
market are to be recyclable to a minimum of 85% by weight per vehicle and are to be re-usable and/or
recoverable to a minimum of 95% by weight per vehicle.

55.      Under the proposed WEEE directive, producers will be responsible for collecting waste
electrical and electronic equipment from designated collection points for treatment; such waste
accounted for 4% of the waste stream in 1998, but is the fastest growing component, increasing at
3-5% annually, and is a source of pollutants in the municipal waste stream. The proposal sets
minimum percentages for the recovery of waste of between 60% and 80%, depending on the product
category, to enter into force no later than 2006. According to the Commission, this producer’s
responsibility to organize and finance the treatment, recovery, and disposal of waste is in line with the
polluter-pays principle, since the additional costs for waste management will be passed on to the
consumer by the producer.115            Producers are free to establish the mechanisms to fulfil the
requirements of the directive, either on an individual basis or collectively. It should be noted that, at
the time of the last review of the EU, when the proposal had just been issued, a number of EU trading
partners had expressed disapproval with the nature of the obligations imposed on producers and on the
late stage in the process at which the proposal had been discussed in the TBT Committee.116

56.     The Commission has also proposed raising the recovery and recycling targets for Member
States. In particular, the recycling target for packaging is to be raised from 25-40% in 2001 to
55-70% in 2006. The proposal does not contain provisions on producer responsibility for attaining
these targets, which the Commission intends to address in forthcoming planning documents. In
another development, the Commission has pursued an infringement proceeding on Germany’s
implementation of the directive, which is considered to impose re-use packaging requirements on
producers of natural mineral waters that are a barrier to trade.117

(c)     Standards118

European standard-setting

57.      European standards organizations, CENELEC and CEN, develop European standards in a
consensual process with national committees (representing all 15 Member States, Norway,
Switzerland, Iceland, the Czech Republic, and Malta). The European Telecommunications Standards
Institute (ETSI) is constituted upon membership representing public authorities, manufacturers, and
operators from the geographic area of the European Conference on Postal and Telecommunications
Administrations (CEPT).119 According to the Commission, more than 80% of the standardization
activity of the EU takes place at European level (or international level), whereas 80% was at national
level in 1985.120 However, the speed of delivery of standards is a key concern, as it may take up to


        115
             European Commission Press Release IP/00/602.
        116
             WTO document WT/TPR/M/72.
         117
             European Commission Press Release IP/01/473.
         118
             According to Annex 1 of the TBT Agreement.
         119
              CEPT members are: Albania, Andorra, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova,
Monaco, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, San Marino, Slovakia,
Slovenia, Spain, Sweden, Switzerland, the former Yugoslav Republic of Macedonia, Turkey, Ukraine, and the
Vatican.
         120
             COM(2001)736.
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eight years to complete a standards programme in response to a New Approach directive as a result of
the difficulty of reaching consensus among the numerous stakeholders.

58.      The main avenue for standard-setting activity at European level is an industry-led initiative,
whose costs are borne by the industry. For a small fraction of standards, the initiative comes from the
Commission, in particular for the harmonized standards to provide technical solutions to meet the
essential requirements of the new approach directives. Progress in agreeing European standards for
New Approach directives has continued to be made during the period under review, in particular for
construction products (e.g., cement, structural bearings, and lifting plants), after a 12-year process of
elaboration. Standardization is nearing completion for toys, weighing instruments, gas appliances,
and simple pressure vessels.121

International standard -setting

59.      In non-food product areas, both the European and the national standard-setting bodies of the
Member States are active in the technical bodies of the International Organization for Standardization
(ISO) and International Electrotechnical Commission (IEC) in order to develop voluntary
international standards. With respect to food regulations and standards, each Member State is
represented at the Codex Alimentarius Commission, which is a joint FAO/WHO programme to
develop an international food code.

60.      The Commission issued further guidelines in mid-2001 on the EU policy with respect to
international standards.122     The guidelines confirm that, on the one hand, the advantages of
international standardization are recognized as facilitating trade, and that, on the other hand,
"standards cannot replace governmental responsibility to safeguard a high level of protection
concerning health, safety and the environment". The Commission notes that the TBT Agreement
establishes the obligation to use international standards where they exist as the basis for technical
regulations, except when these would be inappropriate to meet public policy objectives. The
Commission is of the view that "each WTO Member has the sovereign right to define the level of
protection it deems appropriate to meet legitimate objectives, subject to the requirement that they not
be applied in an arbitrary or discriminatory manner". It is also of the view that international standards
"may be seen as beneficial in some instances, but they may be perceived as little advantageous or
even as threats in others". 123

61.      Through the Vienna and Dresden agreements with ISO and IEC, respectively, the CEN has
committed itself to, and the CENELEC has obliged itself to, adopt international standards as
European ones. In the case of some harmonized standards used in relation with New Approach
directives, modifications to the international standards may be necessary to ensure compliance with
legal requirements concerning the protection of public health, safety or the environment in the
Community. The result of the agreed cooperation between the European and international standards
organizations is, according to the Commission, a high level of transposition of international standards
as European standards: over 40% for CEN and about 80% for CENELEC.

62.     As was noted at the time of its last Review, the EU has been involved in a long-standing
WTO dispute settlement proceeding on hormone-treated beef, as a result of which Community
exports underwent retaliation by the United States and Canada in 1999; this continues to be in



        121
            COM(2001)527.
        122
            SEC(2001)1296, p.3. See also COM(1996)564.
        123
            SEC(2001)1296, p.5.
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place.124 According to the Commission, a WTO Member may impose more trade restrictive measures
if there is scientific evidence (a risk assessment) justifying measures leading to a higher level of
protection than by applying Codex standards.125 During the period under review, the Community has
engaged in a risk assessment for its measures with respect to hormone-treated beef, and is considering
revisions to its legislation banning the use of hormones as growth promoters. Another controversial
issue at the time of the last Review concerned a regulation on aflatoxin, which affected in particular
the trade interests of exporters of cereals, dried fruit, and nuts.

(d)     Conformity assessment

63.      In the area of New Approach directives, conformity assessment is based on the intervention of
a first party (manufacturer) or a third party (notified body), and relates to the design phase of products
and/or to their production. Should a manufacturer subcontract the design and/or production, he still
remains responsible for the execution of the conformity assessment procedures for both phases.
Conformity assessment procedures are defined in a limited number of modules, which give the
legislator, in relation to the type of products and risks involved, the means to set up the appropriate
procedures for manufacturers to demonstrate product conformity against the provisions of the
directive. In setting the range of possible modules, directives take into consideration such issues as the
type of products and the nature of risks involved. Additionally, the conformity assessment procedures
under a specific directive must provide, in an equivalent way, sufficient confidence as regards the
conformity of products to the relevant essential requirements.

64.      To reduce the b  urden of conformity assessment, two types of agreement have been concluded
by the EU: Protocols to the Europe Agreements on Conformity Assessment and Acceptance of
Industrial Products (PECAs); and Mutual Recognition Agreements (MRAs) for the results of
conformity assessment with certain third countries. Both types of agreement provide for the mutual
acceptance of test reports, certificates, and marks of conformity issued by designated CABs in
"sectors" established in Annexes.

65.      PECAs are based on the commitment of the candidate countries to ensure full conformity
with Community technical regulations and European standardization and conformity assessment
procedures, while no such commitment underlies the MRAs. PECAs have been concluded with
Hungary and the Czech Republic and entered into force in mid 2001, with sectors being added as
negotiations progress. PECAs have been concluded with Latvia and Lithuania, and are under
negotiation with Estonia, Latvia, Lithuania, Slovakia, and Slovenia. Negotiations on a PECA are
expected to be launched with Poland.

66.       During the period under review, an MRA with Japan entered into force on 1 January 2002,
and the MRA with Switzerland is expected to enter into force in the course of 2002. MRAs were
already in force at the time of the last Review with Australia, Canada, Israel, New Zealand, and the
United States. In the guidelines ("tool-box" paper) issued in mid 2001 on the subject, the
Commission noted that "    MRAs are only worth negotiating in the following circumstances: (i) where
certification systems are not too different in principle and in practice; (ii) where there are substantial,
functioning regulatory, standards and certification infrastructure and market surveillance
infrastructures and capacities, that are comparable and compatible with those of the EU; (iii) where
trade between the parties is sufficient to justify the cost involved in setting them up; and (iv) where
the trade that is being liberalised offers some opportunities to open markets to EU industry as well as


        124
              See complaints by the United States (WT/DS26) and Canada (WT/DS48).           For the latest
information on the proceeding, see WTO online information. Available at: www.wto.org .
          125
              European Commission MEMO/00/27.
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to that of the third country, since political support from industry is evidently necessary if trade
liberalisation measures are to gain support."126

(ix)       Government procurement

(a)        Overview

67.      The Commission continues to give priority to the opening up of public procurement to
competition due to its importance in the market for goods and services – some 16% of Community
GDP, or over € 1,350 billion, in 2000 – and potential benefits in terms of a better use of public
monies and a more efficient allocation of resources.127 The Community framework to attain this
objective, consisting of harmonizing directives for Member State legislation on procurement adopted
in the context of the Single Market, has not been modified during the period under review. To
consolidate the existing framework and make substantive amendments to provisions, the Commission
issued proposals for two Directives 128, and for a regulation to mandate the use of the "Common
Procurement Vocabulary (CPV)" to ensure full comparability of published tenders.129 Standard forms
are to be used as from 1 May 2002 in contract notices published in the Official Journal.130

68.      An indicator of the extent to which procurement is "open" to competition is the share of
procurement that is openly advertised in the Official Journal (Table III.5). According to the latest
available figures, some 15% of all procurement in the EU (about € 205 billion) was advertised in the
Official Journal in 2000, up by almost 100% from 1995. All Member States recorded considerable
improvement in this respect, with the exception of Germany, the largest procurement market in the
EU, which raised the share of advertised procurement from 5% to 6%, and Portugal, which
maintained its share at 15%. In relation to GDP, the share of openly advertised procurement has also
risen considerably since 1995 in all Member States, with the exception of Greece, Portugal, and
Germany, to reach 2.41% of EU GDP.
Table III.5
Open procurement indicators, 1995 and 2000
                                                                                              a
                                                                           MEMBERS
             EU        B       DK        D       EL        E        F        IR          I         L     NL      A      P       FI     S     UK


                                         Openly advertised public procurement (% of total procurement)
    1995      8        7       16        5        34       9        5        11          10        5      5      5     15       8     12      15
                                                    b
    2000     15       16       21        6       38        25       15       21          18        12    11      13    15       13    20      22
                                                Openly advertised public procurement (% of GDP)
    1995    1.44     0.99      2.67     0.91     4.87     1.18     0.94     1.54     1.23         0.8    0.99   0.83   2.19    1.3    2.41   3.28
    2000    2.41     2.32      3.55     0.96     4.37     3.25     2.44     2.6      2.17         1.67   2.19   2.31   2.12    2.01   3.67   3.81

a          B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;                        NL:
           The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.
b          1999.
Note       The term "openly advertised" refers to publication in the Official Journal.

Source:    Eurostat, Public procurement 1 and 2, Key Indicators.

           126
            SEC(2001)1570, p.15.
           127
            European Commission SPEECH/00/185.
        128
             COM(2000)275 and COM(2000)276. See European Commission Press Release IP/00/461.                                                   For
background see COM(98)143.
        129
            European Commission Press Release IP/01/1189.
        130
            Council Directive 2001/78/EC. See European Commission Press Release IP/01/1271.
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69.     Suppliers of goods and services from parties to the WTO plurilateral Agreement on
Government Procurement (GPA) may tender for contracts (above specified thresholds) in accordance
with the commitments assumed by the EU.131 In addition, the regional trade agreements recently
concluded by the EU (Chapter II(4)(ii)) provide for reciprocal access to procurement.

(b)      Proposed legislative framework

Current framework

70.      Under the current legislative framework, three directives concern public supplies, works, and
services132, complemented by a remedies directive.133 Another directive concerns the procurement by
publicly owned entities and private entities with special or exclusive rights operating in the water,
energy, transport, and telecommunication areas (utilities directive)134, also complemented by a
remedies directive.135 The scope of application in each of the directives is established by minimum
thresholds for contracts, which correspond where necessary to those in the GPA, while below-
threshold contracts are covered by the provisions and principles of the EC Treaty.

71.      During the period under review, the Commission has pursued a "more systematic, horizontal
approach in handling cases of infringement of the public procurement rules rather than just reacting
case-by-case to complaints received". 136 This has involved preventing infringements from taking
place when major events or infrastructure projects are being prepared, or taking a horizontal approach
to a problem detected in one Member State. The Commission continues to have recourse as well to
the infringement (Article 226) procedure for dealing with instances where directives have not been
transposed; infringement proceedings against Austria, France, Greece, and the United Kingdom
concerning failure to transpose legislation, which inter alia take into account certain provisions of the
GPA, were concluded upon implementation of the directives in question. The Commission also
handled 272 complaints concerning the award of contracts in 2001, including 103 new ones, with
progress reported on resolving irregularities.

Proposed legislation

72.       Under the proposed new legislative framework, the first group of three directives would be
consolidated into a single directive, covering supplies, works, and services (excluding most defence
contracts and those covered by the utilities directive), still complemented by the remedies directive.
A single harmonized threshold expressed in euros would apply for each category of contract: supplies
and services (€ 130,000 for a central purchasing entity and € 200,000 for sub-central purchasing
entities); and works (€ 5,300,000). According to the Commission, the new thresholds would not
change the effective scope of application of the procurement rules, and would therefore pose no issues


         131
               The GPA was transposed into EC law by Council Decision 94/800/EC. The scope of the EU's
commitments concern the procuring entities listed in Annexes 1, 2 and 3 of Appendix I of its Schedule, relating
to central government entities, sub-central government entities, and other entities such as utilities, respectively,
and subject to minimum thresholds for contract values; and of goods and services and construction services
specified in positive lists, found respectively, in Annexes 4 and 5 of Appendix I (WTO document
GPA/W/35/Rev.1).
           132
               Directives 93/36/EC, 93/37/EC and 92/50/EC, amended by Directive 97/52/EC.
           133
               Directive 89/665/EEC.
           134
               Directive 93/38/EC, amended by Directive 98/4/EC. In order to open the market for public
procurement, the Community amended the directive to extend the scope of utilities operating under conditions
of effective competition, notably in energy and telecommunications.
           135
               Directive 92/13/EC.
           136
               COM(2001)309, p.88.
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in relation to the GPA. The scope of covered services would extend to telecom services, currently
excluded.

73.      Other proposed substantive amendments to these directives concern the introduction of the
new possibilities for relations between the contracting authority and suppliers. One proposal concerns
"dialogue" with candidates during the tendering process, which is not allowed under existing
procedures, for "particularly complex contracts".    Another proposal concerns exempting the award of
contracts from the requirements of the Directive when a "framework" a     greement has been concluded
between the contracting authority and selected suppliers, itself awarded on the basis of the Directive.
Other proposed substantive amendments concern greater flexibility for technical specifications, as
well as modified award and selection criteria.

74.      A new utilities directive has also been proposed, whose scope would be reduced to water,
energy, and transport, still complemented by the relevant remedies directive. The Commission has
justified the exemption for telecoms operators on the grounds that effective competition has been
realized in the sector (Chapter IV(4)) and commercial considerations govern procurement decisions.
New thresholds would apply: supplies, services and designs (€ 400,000); and works (€ 5,300,000).
The Commission has noted that the objective is to harmonize thresholds for GPA and non-GPA
covered procurement, posing no issues in relation to the GPA.

75.     Provisions common to both sets of proposals are: to extend the scope for electronic tendering
               ll
to 100% of a covered contracts, shorten the delays for the award procedure in certain circumstances
where electronic means are used; and describing the subject-matter of tender by reference to CPV. 137

(x)     State-trading (as defined in GATT Article XVII)

76.      The Commission has notified the WTO of the existence of two state-trading enterprises: Gaz
de France, for lighting gas, producer gas, water gas, and similar gases; and Entreprise Minière et
Chimique, for mineral or chemical potassium fertilizers.138 The Commission has also informed WTO
Members that the import and export monopoly on electricity of Electricité de France was eliminated
in 2000. The monopoly on the importation of tobacco from third countries in Italy was eliminated
during the period under review.

(xi)    Anti-dumping and countervailing measures

(c)     Anti-dumping measures

77.       As was noted at the time of the last Review of the EU in mid 2000, the anti-dumping
legislation for imports from third countries, as notified to the WTO139, applies to agricultural and
industrial products, and separate legislation applies to products covered by the ECSC Treaty.140 The
legislation applies to all third countries, including preferential trade partners, except for members of
the EEA in the sectors where the EU's competition policy framework applies. The legislation
contains special rules for economies in transition, which were amended in October 2000 to grant
"market economy treatment" to exporters from Albania, Georgia, Kazakhstan, Kyrgyzstan, Mongolia,

        137
              COM(2001)449. See European Commission Press Release IP/01/1189.
        138
              WTO documents G/STR/N/5/EEC, G/STR/N/6/EEC, G/STR/N/7/EEC.
          139
              Regulation 384/96 notified in WTO documents G/ADP/N/1/EEC/1, G/ADP/N/1/EEC/1/Suppl.1 and
G/ADP/N/1/EEC/2.
          140
              Commission Decision 2277/96/ECSC (commonly referred to as the "ECSC Decision"). Upon the
expiry of the ECSC Treaty in 2002, the products covered are to become subject to the common commercial
policy under Article 133 of the EC Treaty.
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Ukraine, and Viet Nam on an ad hoc basis for the purpose of anti-dumping investigations, in addition
to those from China and the Russian Federation. 141 Other countries with an economy in transition are
to benefit automatically from the provision upon their accession to the WTO.

78.      A complement to the anti-dumping regime concerns the implementation of rulings adopted by
the DSB in dispute settlement proceedings initiated by third countries on anti-dumping and
countervailing measures imposed by the EU.142 Such "disputed measures" may be repealed or
amended, or other special measures may be adopted as appropriate to implement legal interpretations
developed in the ruling. However, there is to be no retroactive effect, as the EU has argued that DSB
rulings have only a prospective nature. In particular, the implementing measures "shall not serve as
basis for the reimbursement of the duties collected prior to that date, unless otherwise provided for".

79.      The latest comparative data for 2001 indicate that the EU had the second largest number of
product categories with measures in force, at 175, behind the United States; this was the same level
as in 2000 and down from 192 in 1999 (Table III.6); the Commission emphasizes that some 40% of
anti-dumping investigations are terminated without measures being taken. In cases where measures
are taken, a number of exporters from more than one WTO Member are generally involved, and the
measures may combine definitive duties and price undertakings; price undertakings and definitive
duties were imposed in 49 of the 175 cases in which measures were in force at the end of 2001.
Among WTO Members, China was the most affected at the end of 2001, with 34 cases, followed by
Chinese Taipei, and Thailand, with 13 cases each.143 Most affected product categories continue to be
iron and steel products, consumer electronics, and chemicals.

Table III.6
Anti-dumping actions, 1991-01
(Number of cases)
                              1991      1992   1993   1994   1995   1996   1997   1998   1999   2000   2001

 Initiations                      20     39     21     43     33     24     23     21     66     32     28
 Measures taken                   22     16     19     21     13     26     32     31     40     41     15
 Measures in force                142    158    150    151    147    163    153    162    192    175    175

Source:        WTO Secretariat.

(d)            Countervailing measures

80.      There has been no change in the countervailing legislation of the EU during the period under
review.144 The Commission has propo sed the adoption of a new instrument "to react against unfair
competition from subsidized third country airlines" (section (3)(iii)).145 The current regime was
complemented, as noted above, with respect to the implementation of rulings adopted by the DSB in
dispute settlement proceedings.

81.     Although it was noted in its last Review that the EU was not a frequent user of countervailing
procedures, there was a significant increase in measures in force in 2000, which remain in place in
2001. From six cases in 1999, the EU had 17 cases with definitive measures in place in 2000, of

               141
             Regulation 2238/2000 notified in WTO document G/ADP/N/1/EEC/2 Suppl.2. See European
Commission Press Release IP/00/1144. For China and the Russian Federation, see Regulation 905/98 notified
in WTO document G/ADP/N/1/EEC/2. Commission Decisions 1000/1999/ECSC and 434/2001/ECSC of
2 March 2001 amend Decision 2277/96/ECSC.
        142
            Regulation 1515/2001.
        143
            WTO document G/ADP/N/85/EEC.
        144
            Regulation 2026/97 notified in WTO document G/SCM/N/1/EEC/2.
        145
            European Commission Press Release IP/02/394. For background see COM(2001)574.
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which 16 were still in place at the end of 2001. In almost all cases, the investigations concern
products also subject to an anti-dumping investigation. Among WTO Members, India's exporters
were most affected, with seven measures in force at the end of 2001, and three new investigations
under way.

(2)     MEASURES D IRECTLY AFFECTING E XPORTS

(i)     Procedures

82.     The Community Customs Code (section (1)(i)) also applies to exports. All goods leaving the
customs territory of the Community are subject to customs supervision and must be presented to
customs with, under the normal procedure, an export declaration consisting of the Single
Administrative Document (SAD), accompanied by pertinent documents (e.g. licence for products
covered by the Common Agricultural Policy). The customs authority may grant permission to
simplify the completion of formalities and procedures.

83.     The Community continues to recognize the right of developing countries to engage the
services of preshipment inspection entities on its customs territory for the purpose of carrying out
controls on the quality, quantity or price of goods destined for export to the territory of these third
countries.146 However, contracts are subject to prior notification to the Commission (except for the
remuneration), and other conditions concern information to the exporter, the non-discriminatory
conduct of preshipment inspection activities, limits on disclosure of information by exporters, and
procedures regarding exporters' grievances.

(ii)    Prohibitions, restrictions, and licensing

84.      Measures affecting exports are adopted by the Community to implement the Common
Foreign and Security Policy (CFSP). During the period under review, restrictions affecting the
Federal Republic of Yugoslavia were lifted following the presidential elections of
24 September 2000.147 As of end 2001, the EU had embargoed the export of arms, munitions, and
military equipment to Afghanistan, Angola (only Unita), Ethiopia and Eritrea, Iraq, Libya, Myanmar,
Sierra Leone (only RUF), and Sudan.

85.     In June 2000, the EU established a Community policy on the control of exports of dual-use
items and technology (which can be used for both civil and military purposes), to replace the common
framework established by the Council.148 An authorization is required for a listed good (Annex I) or
for a good that, although not on the list, has been determined by a Member State to be subject to
authorization because of its potential use for the production of chemical, biolo gical or nuclear
weapons, and had been duly notified to the Commission. Certain destinations are also subject to
authorization for goods not listed (e.g., subject to an arms embargo). Exports to certain destinations
continue to take place under simplified procedures, such as general authorization (Annex II).149

86.     Measures that apply on the Community market to protect the consumer, environment or
animal welfare generally concern exports as well as imports. Thus, for example, controls on trade of
dangerous chemicals apply both to imports and exports, and measures to implement the Montreal
Protocol or Basel Convention affect both imports and exports of products covered. The Community


        146
            Regulation 3287/94 notified in WTO document G/PSI/N/1.
        147
            Decision 2000/599/CFSP.
        148
            Regulation 1334/2000.
        149
            Annex II lists Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the United States.
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maintains export licensing requirements on certain categories of cultural goods, including
archaeological objects, sculpture, and books more than 100 years old.150

87.       In all other respects, the general principle of EU policy with respect to exports of other goods
to third countries is freedom from quantitative restrictions.151 Exceptions include protective measures
to prevent a critical situation from arising due to a shortage of essential products; these may be
limited to exports from certain regions of the Community or only to certain destinations. Currently,
statistical surveillance applies on exports of untreated calf and bovine hides 152 ; surveillance on
secondary copper materials, in place since 1998, was removed.153 Automatic licensing applies on
certain products concerned by common market organization (section (2)(vii)(c)), or subject to export
licensing for the allocation of tariff-quota commitments by trading partners.154

(iii)   Duties

88.     The Community does not apply duties or charges on exports.

(iv)    Export subsidies

89.     In principle, the Community does not grant subsidies conditional upon exportation, except for
those provided for under the CAP on alcohol and incorporated products, milk and milk products, beef
and veal, pigmeat, eggs, poultry meat, sugar and related products, wine, cereals, rice, fruit and
vegetables, and processed fruit and vegetables.155 These subsidies are to cover the difference between
Community prices and international prices, without which such exports could not take place.
According to the latest available data, the total amount of export refunds in 2000 was € 4.2 billion
      n
(not i cluding the "self-financed" refunds on sugar), of which the largest shares went to milk and milk
products (40%), and arable crops (19.7%).156

(v)     Export assistance

90.      The Community does not have a policy of direct or indirect assistance to exports, which
remains within the competence of Member States, subject to Community rules.157 Member States
observe the guidelines on direct assistance under the 1978 OECD Arrangement on Guidelines for
Officially Supported Export Credits.158

(vi)    State-trading enterprises

91.     One state-trading enterprise in France, Gaz de France, has an impact on exports of lighting
gas, producer gas, water gas, and similar gases (section (1)(x)).159 The Commission has notified the
WTO that the export monopoly on electricity of Electricité de France was eliminated in 2000.


        150
              Council Regulation 3911/92, implemented by Commission Regulation 752/93, as amended. The list
of categories covered is contained in Annex I of the Council Regulation, as last amended in 1996 by Council
Regulation 3911/92.
          151
              Council Regulation 2603/69, as amended.
          152
              Annex I of Council Regulation 2603/69, as modified by Commission Decision 79/365/EEC.
          153
              Commission Decision 98/562/EC.
          154
              The allocation of export licences for certain cheeses exported to the United States is covered most
recently by Commission Regulation 2054/2001.
          155
              Commission Regulation 800/1999, as amended.
          156
              WTO document G/SCM/N/71/EEC.
          157
              Directives 84/568/EEC and 98/29/EC.
          158
               OECD online information. Available at: http://www.oecd.org [1 March 2002]. The arrangement
does not apply to agriculture products and military equipment.
          159
              WTO document G/STR/N/5/EEC, G/STR/N/6/EEC, G/STR/N/7/EEC.
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(3)     MEASURES D IRECTLY AFFECTING P RODUCTION AND TRADE

(i)     Legal framework for businesses

(a)     Company law

92.     The main development during the period under review concerns the adoption in October 2001
of the Statute for a European Company (Societas Europeae (SE)), due to enter into force in 2004.160
The SE provides companies with the option of operating under Community law rather than operating
under the national company law regimes where subsidiaries are located, with the annual cost savings
of simplified organi zation and administration estimated at € 30 billion. 161 Adoption of this long
standing proposal required the resolution of the controversial issue of employee involvement.162

93.     Subject to a minimum capital requirement (€ 120,000), an SE can be established by:

-       formation of a holding company promoted by private or public limited companies from at
        least two Member States;

-       formation of a joint subsidiary by companies from at least two Member States;

-       by the merger of two or more public limited companies from at least two Member States; or

-       by the transformation of a public limited company which has had, for at least two years, a
        subsidiary in another Member State.

94.      A company that does not have its head office in the Community may also participate in the
formation of an SE, provided that the company is formed under the law of a Member State, has its
registered office in that Member State, and has demonstrated a real and continuous link with a
Member State’s economy. Each SE will be published in the Official Journal and be registered in the
Member State where the administrative head office is located. The SE will continue to be taxed in all
places of operation.

95.     The proposed Takeover Bids Directive, another long standing Commission proposal to
complete the company law framework and a key component of the Financial Services Action Plan
(Chapter IV(3)), was not agreed, although the Commission intends to issue a revised proposal in
2002.163 In addition, the Commission intends to issue a revised proposal to harmonize legislation on

        160
               Regulation 2157/2001. See European Commission Press Release IP/01/1376 and MEMO/01/384.
        161
               SEC(96)2378.
           162
               Directive 2001/86/EC, also to enter into force in 2004. See European Commission Press Release
IP/01/1376. The controversy on the issue stemmed from different national company law regimes on the
participation of employees; Member States with such traditions were anxious that the formation of an SE
should not be used to circumvent these requirements, and Member States without such traditions were anxious
to ensure that requirements were not imposed. Under the Directive on worker involvement, the creation of an
SE would require negotiations on the involvement of employees with a body representing all the employees of
the companies concerned. If a mutually satisfactory solution could not be found, the Directive requires
application of a set of standard principles on regular consultation and information to employees. Worker
participation requirements apply to an SE formed from companies where at least 25% of employees had the
right to participate previously.
           163
                Following the rejection of the proposed Takeover Bids Directive by the European Parliament in a
vote on 4 July 2001, the Commission established a High Level Group of Company Law Experts to examine
issues identified by the European Parliament for further harmonization; a report was made in early 2002
(European Commission Press Release IP/02/24).
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cross-border mergers (the10th company law directive).164 As part of a general clean-up of long-
pending proposals, the Commission withdrew the proposed fifth company law directive, which would
have harmonized national laws on the structure of public limited liability companies and the powers
and obligations of their organs.

(b)     Reporting standards

96.     Companies established in Member States use national reporting standards, as harmonized by
Community legislation165 ; a new initiative launched during the period under review is to harmonize
the requirement of independence for the statutory auditor.166 To prepare their consolidated financial
statements, listed companies have the option of using International Accounting Standards (IAS) in
Austria, Belgium, France, Finland, Italy, and Luxembourg167, or, in Austria and Germany, the option
of United States’ General Agreed Accounting Principles (US-GAAP). Of the 7,000 companies listed
on Community stock exchanges, about 200 use IAS and 400 use US-GAAP. About half of those
using US-GAAP have a dual listing in the United States, where its use is required by the Securities
Exchange Commission (SEC).

97.      In a major development during the period under review, the Commission proposed a
regulation to require the use of IAS by all listed companies as of 2005, as part of the Financial
Services Action Plan (FSAP) (Chapter IV(3)).168 The Commission did not consider use of US-GAAP
as the basis for Community reporting requirements, although equivalent to IAS, mainly because it
considers that "allowing use of GAAP would run against the fundamental objective of the strategy to
move in the direction of one single set of global standards", that GAAP "are developed without any
input from outside the US", and that "the application of US GAAP within the European environment
as an alternative to IAS would give an unwarranted advantage to US interests". 169 Although the
change-over to IAS will imply costs for companies, the Commission anticipates they will gain
through reduced costs of raising capital as a result of increased transparency and improved
comparability of financial statements across the Community. 170 For companies currently using
US-GAAP, the changeover to IAS would require them to prepare a reconciliation to US-GAAP (Form
20F); the Commissio n "hopes and expects" that the SEC will accept "in the near future" statements
prepared on the basis of IAS without such a reconciliation being required. 171

98.     Another development is the emergence of a new agenda for corporate responsibility in
reporting on company activities. The Commission issued a recommendation on environmental issues
in companies’ annual accounts and reports, so that shareholders could be better informed on the
                                                                            nd
environmental dimension of company activities, and better assess the nature a scope of associated
risks and liabilities for the company’s financial position.172 The Commission also issued a Green



        164
              See WTO (2000a), Vol. 1, p. 72, Box III.3.
        165
              Directives 78/660/EEC and 83/349/EEC.
          166
              European Commission Press Release IP/00/1478.
          167
               Standards developed by the International Accounting Standards Committee (IASC), replaced by the
International Accounting Standards Board (IASB) in 2001. There are 41 IAS and 25 interpretations.
          168
               COM(2001)80. See European Commission Press Release IP/01/200 and MEMO/01/40. For
background see COM(2000)359.
          169
              European Commission MEMO/00/606. For background see COM(95)508.
          170
              European Commission Press Release IP/02/584.
          171
              European Commission MEMO/01/40.
          172
               "Commission Recommendation on the recognition, measurement and disclosure of environmental
issues in the annual accounts and annual reports of companies" (OJ L 156, 13/6/2001). See European
Commission Press Release IP/01/814.
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Paper on Corporate Social Responsibility (CSR), which addresses the social dimension of company
operations (e.g., human resource management, labour standards).173

(c)     Taxation

99.       Average rates of corporate taxation in the EU Member States continue to differ significantly,
with no sign of convergence during the period under review. 174 Although the Commission has long
favoured harmonization to reduce these differences, the Member States are not unanimous on the
issue 175; consequently, Commission action to date has focussed on enhanced mechanisms for tax co-
ordination, notably action to reduce or eliminate "harmful tax competition". The Council has been
considering a package of three measures, to be adopted by the end of 2002, consisting of: (i) a
proposed Directive on taxation of cross-border savings income, part of the FSAP (Chapter IV(3)),
substantially revised in July 2001; (ii) the Code of Conduct for business taxation; and (iii) a
proposed Directive to eliminate withholding taxes on payments of interest and royalties made between
associated companies of different Member States.176 Under the proposed Code of Conduct for
business taxation, Member States would refrain from introducing any new harmful tax measures and
would amend any laws or practices deemed to be harmful in respect of the principles of the Code.177
A related development is the investigation launched by the Commission in July 2001 on 15 tax
provisions in 12 Member States, including preferential tax arrangements granted to multinational
companies (e.g., Ireland's rules on the repatriation of foreign income from foreign subsidiaries or
branches), or to companies active in the insurance and financial services sector (e.g., Luxembourg's
finance companies regime).178 For the future, the Commission intends to propose that companies, in
particular those operating as European companies (see above), would be able to consolidate their
corporate tax base.179

(ii)    Competition policy

(a)     Overview

100. As reported in previous Trade Policy Reviews of the EU, the Commission gives central
importance to an effective Community-wide competition policy, based on the provisions of the EC

        173
              DOC/01/9. See European Commission SPEECH/02/14.
        174
               During the period under review, France, Germany, Ireland and the United Kingdom have reduced
corporate tax rates, and Finland has increased them. See KPMG (1999 and 2000). In addition, a study by the
Commission (SEC(2001)1681) indicates variations of up to 30% in effective rates of company taxation –
Germany at the top end and Ireland at the bottom-noting that such differences alone do not explain location and
investment decisions.
          175
              COM(2001)260. Unanimity in the Council is required for adoption of directives on taxation
(Article 93 of the EC Treaty). Three instruments have been agreed: Directive 90/435/EEC, to eliminate the
double taxation of parent companies and subsidiaries; Directive 90/434/90, which requires taxation to be
applied when capital gains are realized from mergers, divisions or transfers of assets and exchanges of shares
concerning companies of different Member States; and a five-year Convention to prevent double taxation as a
result of transfer pricing used between associated companies located in different Member States. See "Company
Taxation: introduction" [Online]. Available at: http://europa.eu.int/scadplus [9 February 2002].
          176
              European Commission MEMO/01/434.
          177
               European Commission SPEECH/02/15.                  The Code of Conduct Group was established in
March 1998 and reported in November 1999 on 66 measures identified in the course of its activity, certain of
which have been the subject of state-aid investigations.
          178
               European Commission Press Release IP/01/982. Its Annex provides a complete list of the tax
measures included in the investigation.             For applicable guidelines see the Commission's "Notice on the
application of the State aid rules to direct business taxation" (OJ C 384/3, 10/12/1998).
          179
              COM(2001)582. See European Commission Press Release IP/01/1468.
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Treaty, and complementing the competition policies of the 15 Member States on their national
territories.180 The Community’s competition policy encompasses antitrust and mergers, liberalization
(e.g., telecommunications), and state aid (section (iii) below). Its decisions are subject to judicial
review by the European Court of First Instance (CFI) and the European Court of Justice (ECJ).

101. The Commission conducted 284 antitrust investigations in 2001, down from 297 in 2000, and
385 in 1999; the downward trend is explained mainly by the new policy on vertical restraints. In
contrast, the number of notified merger cases remained on a steady trend, with 335 cases in 2001,
compared to 345 in 2000 and 292 in 1999.181 The Commission is of the view that globalization and
the development of the Single Market, for which economic potential has been enhanced by adoption
of the euro, are the two most important factors driving the consolidation of industry across EU
Member States and on a transnational basis. For the period 1990-01, the Commission took 1,922
decisions on merger cases, of which 18 cases were blocked, 18 proposals were withdrawn, and 144
mergers were approved with undertakings.182

102. Mergers of a transnational character require assessment by competition policy authorities in
different countries, on the basis of different laws and competition policy practices; the Commission
has been increasingly concerned with developing new means of promoting convergence of decisions
and remedies. As noted by the Commissioner in charge, "the transnational character of today’s
competition cases clashes with the traditionally territorial scope of domestic antitrust rules". 183 In
such instances, the Commission cooperates with the competition policy authorities of EEA members
and, on the basis of bilateral agreements, with those in Canada, the United States, and the candidate
countries in Central and Eastern Europe; a bilateral agreement with Japan is expected to be concluded
shortly.

103. To foster international cooperation on competition policy, the Commission was at the
forefront of efforts to launch the "International Competition Network" (ICN), accomplished in
October 2001. The ICN links antitrust agencies in an informal network to exchange experiences and
promote convergence.184 The EU has also long been an advocate of negotiations in the WTO to
conclude a multilateral agreement on competition, which would rest on a commitment to establish and
enforce national competition laws, including certain minimum substantive requirements (e.g.,
prohibition of hard-core cartels), rather than a harmonization of substantive competition laws.185 On
trade and competition, the Doha Ministerial Declaration states that "negotiations will take place after
the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit
consensus, at that session on modalities of negotiations". 186

(b)      Antitrust

104. Article 81(1) of the EC Treaty prohibits, as incompatible with the common market,
anti-competitive agreements between undertakings that may affect trade between the Member

         180
             Based on Articles 31, 81-86 of the EC Treaty and Articles 65 and 66 of the European Coal and Steel
Treaty (ECSC) until its expiry in July 2002.
         181
             European Commission Press Release IP/01/698.
         182
             European Commission Press Release IP/00/1525.
         183
             European Commission SPEECH/01/147.
         184
             European Commission SPEECH/01/147. See also European Commission Press Release IP/001230.
         185
             "European Commission Communication to the Council and the European Parliament, The EU
Approach to the Millennium Round", and "EU Council Conclusions, Preparation of the Third WTO Ministerial
Conference"      [Online].             Available at:        http://europa.eu.int/comm/trade/2000_round/position.htm
[15 November 1999].
         186
             WTO document WT/MIN(01)/DEC/1.
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States187, except for those exempted by the Commission under Article 81(3) as providing a benefit on
balance. Article 82 prohibits, as incompatible with the common market, the abuse of a dominant
position, without exception. In principle, agreements affecting the common market are covered,
irrespective of whether the undertakings are established in the Member States, in third countries, or in
both a Member State and in a third country.

105. Under current rules of procedure for the application of Articles 81 and 82, potentially anti-
competitive agreements must be notified to the Commission to obtain an exemption. 188 In 2001, the
Commission raised its turnover thresholds for de minimis agreements under Article 81(1) to 10% for
agreements between competitors and 15% for agreements between non-competitors, from 5% and
10%, respectively. 189 The Commission has also block exempted certain categories of agreements as
providing benefits on balance.190 During the period under review, the Commission adopted a revised
block-exemption regulation for specialization agreements and for research and development
cooperation agreements191, issued new guidelines on vertical restraints192, and announced plans to
revise the block exemption for technology transfer agreements.193

106. A development of major significance to consumers in the EU is the adoption by the
Commission in February 2002 of a proposal for a new draft block-exemption regulation for motor-
vehicle distribution and servicing agreements between carmakers and dealers, to enter into force on
1 October 2002. Persistent and relatively high car price differentials - even after adjustment for
domestic tax differentials and exchange rate movements between euro and non-euro Member States -
have provided the main evidence to support a change in the block-exemption regulation, as well as
consideration of other factors.194 A review of the operation of the sector since the current block
exemption regulation was introduced in 1995 concluded that "consumers in particular do not seem to
derive from this distribution system the fair share of the benefits of a European single market ".195

107. The current block exemption covers distribution systems that combine selective and exclusive
features, as well as brand exclusivity in most instances; under an exclusive distribution system, a
dealer is allocated a territory, while under a selective system, the dealers are chosen by qualitative
and/or quantitative criteria. The draft block-exemption regulation is, according to the Commission, a
more pro-competitive outcome than would have obtained had the block exemption lapsed and the
agreements in question been folded into the rules on vertical restraints, mainly due to the safeguards
included to deal with specific features of motor-vehicle distribution. 196


         187
              No definition of this concept for the purposes of competition law is provided by the EC Treaty;
however, the term is understood to encompass a wide range of legal forms, including companies, partnerships,
cooperatives, nationalized industries, and other kinds of public corporations, and individuals, engaged in the
production and distribution of goods and services.
          188
              Council Regulation 17/62/EEC.
          189
              OJ C 368, 22/12/2001. See European Commission Press Release IP/02/13. The Commission notes
that "the main reason for treating vertical restraints more leniently than a horizontal restraint lies in the fact that
the latter may concern an agreement between competitors producing substitute goods/services while the former
concerns an agreement between a supplier and a buyer of a particular product/service" COM(1998) 542, p. 13.
          190
              Council Regulation 19/1968/EEC sets out the block exemption concept and procedures.
          191
               Commission Regulations 2658/2000 and 2659/2000. See European Commission Press Release
IP/00/1376.
          192
              OJ C 291, 13/10/2000.
          193
              Commission Regulation 240/96. See European Commission Press Release IP/02/14.
          194
              European Commission Press Release IP/01/1051. See Degryse and Verboven (2000).
          195
              COM(2000)743. See European Commission Press Release IP/00/1306.
          196
               European Commission Press Release IP/02/196 and MEMO/02/18. If the regulation had simply
lapsed, the car sector would have fallen under the block-exemption regulation for vertical restraints, which the
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108. The draft regulation is also of significant interest to carmakers that have not established a
distribution system in the EU. Multi-brand sales were allowed under amendments introduced in 1995,
but major carmakers could impose onerous requirements on car dealers as conditions for exclusive
distribution agreements – separate premises, separate company, separate management and sales team
– which made multi-brand operations uneconomic in practice. Under the new draft regulation, these
restrictions are no longer permitted, al though carmakers may still require their models to be displayed
in a brand-specific area of the showroom. In addition, while car manufacturers retain the choice of
either a selective or exclusive distribution system, the combination of the two is no longe r permitted.
The Commission, however, stopped short of requiring carmakers to sell to supermarkets or supply
Internet distributors, although they can do so if they wish.

109. Another development of significance to consumers is the increased emphasis placed by the
Commission on fighting cartels; in 2001, a record number of cases were closed with fines reaching
€ 1.8 billion. 197 As noted by the Commissioner in charge, collusive behaviour aimed solely at raising
prices by reducing output can only be costly to the consumer, unlike joint ventures that may imply
positive benefits such as scale economies.198 Given the difficulties of investigating cartels (because of
secrecy practices), the Commission has, since 1996, offered a leniency programme to companies
participating in investigations; this was clarified in February 2002.199 More than 80 companies have
filed leniency applications in 16 cartel cases, and otherwise applicable fines – up to 10% of turnover
under existing rules - have been partially or entirely reduced.

110. For the future, the Commission has proposed new rules of procedure for the application of the
antitrust provisions of the EC Treaty that would eliminate the general notification and exemption
procedure for individual agreements. The Commission has argued that the notification procedure,
while diverting Commission resources from their purpose, which is to pursue violations of
competition law, has not brought to light serious violations of the competition rules.200 Part of the
                                e
proposal is the possibility of r quiring registration for certain types of agreement. Once freed from
onerous administrative tasks, the Commission would be better able to focus on complaints and own-
initiative proceedings. Under the proposed new rules, the Commission would also benefit from
expanded powers of investigation201, and over remedies to end infringements.202

111. Competition policy enforcement is to be shared more equally between the Commission and
national courts and competition policy authorities. The latter are to be given, under the proposed
"directly applicable exception system", competence to apply Article 81(3) to individual agreements.
The Commissioner in charge has noted that, although Articles 81(1) and 82 have direct effect in the
Member States, the sole power of the Commission over negative clearances and exemptions under

Commission did not believe offered sufficient safeguards to remedy the problems identified in the report
evaluating the operation of the sector (COM(2000)743).
         197
              € 855 million in fines was imposed on participants in the Vitamins cartel, the highest level ever
imposed on a cartel by the Commission (European Commission MEMO/02/23).
         198
             European Commission SPEECH/00/295.
         199
             European Commission MEMO/02/03.
         200
             COM(2000)582. See European Commission Press Release IP/00/1064. See also "White Paper on
Modernisation of the Rules Implementing Articles 85 and 86 [81 and 82] of the EC Treaty" (OJ C 132, 1999).
         201
              Under existing rules, the Commission can conduct inspections on business premises and request
written information. Under the proposed new rules, Commission inspectors would be able to search private
homes for company documents, seal cupboards or offices to ensure documents are not removed or destroyed,
and conduct oral examinations. Fines for non-cooperation would be substantially increased.
         202
              Under existing rules, the Commission is empowered only to direct the undertakings to bring the
infringement to an end. Under the proposed new rules, the Commission would be able to specify the remedies,
including structural remedies (e.g., divestiture), as well as interim measures.            The new rules clarify that
commitments could be made by undertakings to allay competition concerns, which would be binding.
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Article 81(3) has given it the major role in competition policy enforcement.203 Private economic
operators have been concerned that the proposal will "re-nationalize" competition policy leading to
possible inconsistency of application of the same rule, thereby reducing legal certainty for companies.
The Commission notes that its opinions will guide national courts and consistency of application will
be promoted through a network of national competition po licy authorities and the Commission.

(c)      Mergers

112. Under the Merger Regulation in place since 1990, the Commission assesses proposed
concentrations with a "Community dimension", defined according to turnover, on the basis of the
criterion of whether a dominant position is created or strengthened, considered to be incompatible
with the common market.204 The Commissioner in charge has noted that "the harmful mergers are
those which give rise to companies in such strong positions that allow them either to control conduct
on today’s markets or to control the development of tomorrow’s ones", harming consumers through
higher prices, reduced choice and innovation. Even in such instances, it is still possible for the merger
to proceed, provided suitable remedies to restore competition are offered by the parties. Such
remedies normally require divestiture, but other remedies may also be proposed, such as reducing
entry barriers to other competitors. To clarify its practices in this area, the Commission issued a
notice in December 2000 setting out the principles on which the Commission will assess proposed
remedies.205 Prohibition decisions may still be taken if satisfactory remedies are not offered.

113. As noted above, the Commission cooperates with the competition policy autho rities of other
countries when proposed mergers have a transnational character. The Commissioner in charge has
noted that "such co-operation can be highly effective in merger cases, substantially reducing the risk
of divergent or incoherent rulings". 206 During the period under review, one instance of divergence
was the proposed General Electric/Honeywell merger, cleared by the United States’ Department of
Justice but prohibited by the Commission on 3 July 2001; an appeal has since been lodged by GE at
the CFI.207 The Commission considered that the remedies proposed by GE were not sufficient to allay
the competition concerns identified by the Commission.                  However, despite this instance of
divergence, the Commissioner in charge has made the more general assessment that convergence has
intensified in recent years, strengthening the prospects for multilateral cooperation in this area.208

114. During the period under review, the Commission undertook to review the operation of the
merger control system in the light of more than a decade of experience. In this context, the
Commission considered whether the thresholds that define a Community dimension, which were last
lowered in 1998209, remain too high to encompass all mergers with cross-border effects, notably those


         203
              European Commission SPEECH/00/466.
         204
                Council Regulation 4064/89.      Mergers with a Community dimension are not submitted for
assessment at the national level, thereby offering a "one-stop-shop" to enterprises in such cases. With the aim of
reducing the administrative burden on Commission services, the "Commission notice on a simplified procedure
for treatment of certain concentrations under Council Regulation 4064/89" (OJ C 217, 29/7/2000) was applied
as of 1 September 2000. For an explanation, see DG Competition (2001), Box 5.
          205
               "Commission notice on remedies under Council Regulation 4064/89" (OJ C 68, 2/3/2001). For an
explanation, see DG Competition (2001), pp. 82-84. See also European Commission SPEECH/00/240, Press
Release IP/00/1525, and SPEECH/02/10.
          206
              European Commission SPEECH/00/240.
          207
               European Commission Press Release IP/01/939. The Commission reported to the European
Parliament and Council on the application of the agreements with Canada and the United States in the year 2000
(COM(2002)45).
          208
              European Commission SPEECH/01/540.
          209
              Council Regulation 1310/97, implemented by Commission Regulation 447/98.
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concurrently filed in several Member States.210 This issue was among those taken up in the Green
Paper issued in December 2001, with the Commission suggesting the possibility of automatic
Community competence for mergers subject to filing requirements in three or more Member States.211

(iii)   Subsidies

(a)     Overview

115. A large variety of programmes have been established to provide assistance to enterprises in
the EU, at Community level and at the Member State level, under which subsidies may be granted.
The EU notifies subsidies under GATT 1994 and the WTO Agreement on Subsidies and
Countervailing Measures;        the most recent notification concerns 2000.212 According to the
notification, the total budget for the EU was € 93 billion in 2000, of which 43.9% was allocated to
agriculture (Chapter IV(1)) and 35.2% to structural operations.         Research and technological
development is another important area of Community-wide activity, accounting for an estimated 3.9%
of total expenditure; the sixth framework programme, adopted in January 2002, increases funding to
€ 17.5 billion, up by 17% in relation to the fifth programme, reflecting the priority given to
research. 213

116. No figures are available on subsidies granted by the 15 Member States, but the Commission
has estimated that the category of "State aid" (see below) was € 80 billion in 1999, amounting to 1%
of EU's GDP.214 For the period 1997-99, state aid averaged € 90 billion annually, down by about 10%
from 1995-97.215 Rail transport was the leading category on average (€ 31.5 billion annually),
followed by manufacturing (€ 27.6 billion). The Commission reports that grants were the leading
form of state aid to manufacturing (61%), followed by tax exemptions (22%). Among the Member
States, over 90% of state aid is provided in grant form in Greece, Luxembourg, Spain, and the
United Kingdom, while less than one third is provided in this form in France and Ireland.

117. Germany ranks first in state aid (€ 23.6 billion), followed by France (€ 15.3 billion), Italy
(€ 10.5 billion), and the United Kingdom (€ 6.3 billion). In relation to GDP, Ireland has the highest
level of manufacturing sector assistance (1.01%), followed by Portugal (0.82%), Germany (0.64%),
and Denmark (0.63%). At the Stockholm European Council in March 2001, Member States pledged
to "demonstrate a downward trend" in state aid by 2003, and to shift the emphasis of subsidies from
supporting individual companies or sectors towards horizontal objectives of Community interest, such
as employment, regional development, environment, and training or research.

118. Of particular significance in this respect is the objective set at the Barcelona European
Council in March 2002, to increase the EU’s overall expenditure – from both private and government
sources - on research and development (R&D) to 3% of GDP by 2010. Expenditure on R&D in the
EU was estimated at € 153 billion in 1999, the equivalent of 1.92% of the combined GDP of the 15
Member States; this is considerably lower than in Japan (2.93%) or the United States (2.64%).216
Increased expenditure is designed to promote the goal set at the Lisbon European Council, which is to


        210
            European Commission Press Release IP/00/671.
        211
            COM(2001)745/6. See European Commission Press Release IP/01/1795.
        212
            WTO document G/SCM/N/71/EEC and Add.1-15.
        213
             European Union online information. Available at:    http://europa.eu.int/comm/research [28 April
2002]
        214
            COM(2001)412.
        215
            COM(2001)403.
        216
            European Commission Press Release IP/02/290.
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make the EU "the most competitive and dynamic knowledge-based economy" by 2010 (Chapter I(3)).
Evidence suggests a positive relationship between expenditure on R&D and patents filed (Table III.7).

Table III.7
Selected innovation indicators, 1997-99
(Annual averages)
                                                                                     MEMBERS a
                                   EU     B       DK     D      EL      E      F      IR     I     L     NL     A       P      FI     S     UK


     R&D expenditure (€ billion)   150        4    3      47     1       5     29      1     11     ..    7      3      1       4      8     25
     R&D expenditure (% of GDP)    1.88   1.92    1.99   2.35   0.51   0.87   2.19   1.39   1.00   ..    1.99   1.78   0.69   2.93   3.74   1.85
     Patents (per million          126    133     151    261     7     20     121     56    63     161   180    131     3     277    293    101
     inhabitants)

a              B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg; NL:
               The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.
..             Not available.

Source:        COM(2001)403.

119. Trade-distorting subsidies have continued to be contentious issues in relations between the
EU and its trading partners during the period under review, and have been the object of ongoing
multilateral and bilateral discussions. With respect to agriculture (Chapter IV(1)), disciplines apply
under the WTO Agreement on Agriculture, and their scope is to be addressed under the ongoing
negotiations; while EU funding commitments to the sector have remained stable during the period
under review, the EU has been concerned by the rising budgetary commitment of the United States in
the proposed 2002 Farm Bill.217 The Doha Development Agenda also includes, for the first time,
negotiations on disciplines for fisheries subsidies (Chapter IV(2)). Regular discussions have been
taking place in the OECD on government support to steel in the light of oversupply on world markets
and safeguard measures taken by the United States (section (1)(vii)).218 On subsidies to aircraft
manufacturers, the EU has been engaged in discussions with the United States under the 1992 EC-US
Bilateral Agreement on Trade in Large Civil Aircraft, as well as the 1979 Agreement on Trade in
Civil Aircraft (ATCA), and in the WTO. With respect to shipbuilding, the Commission initiated a
procedure under the Trade Barriers Regulation (TBR) concerning subsidies granted by the Republic
of Korea that allegedly "jeopardise the future of the European shipbuilding industry". 219

120. In the wake of the events of 11 September 2001, which led the United States to make
commitments to support air transport service providers, the Commission decided to continue the
existing framework for state aid in the sector, with a few minor modifications (e.g., subsidizing
increased insurance expenditure), but to propose the adoption of a new instrument "to react against
unfair competition from subsidised third country airlines". 220 The instrument would allow for duties
to be imposed on foreign air carriers equal to the amount of subsidies granted, and the procedures to
do so would follow closely along the lines of the existing instrument for manufactured products
(section (1)(xi)(b)). The proposed instrument is designed to fill a gap in the existing EU legislative
framework to counter allegedly unfair practices in the air transport sector, noting that an instrument

               217
             European Commission Press Release IP/02/647.
               218
             European Commission Press Release IP/01/1784. In the OECD, a Disciplines Study Group has a
mandate to analyse the nature and scope of government interventions and other market distortions in the steel
sector and commitments governments might make to limit such interventions and distortions ("High-Level
Meeting on Steel, 7-8 February 2002 - Conclusions" [Online].               Available at:  http://www.oecd.org
[22 February 2002]).
         219
             European Commission MEMO/00/97.
         220
             European Commission Press Release IP/02/394. For background, see COM(2001)574.
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exists for unfair pricing practices in maritime transport; it should also be noted that countervailing
procedures for subsidies in the services sector do not exist under GATS although the possibility of
their negotiation is foreseen. 221

121. Under the WTO Agreement on Subsidies and Countervailing Measures, products imported
from EU Member States that are determined to be subsidized and meet the conditions established for
injury and causation may be the subject of a countervailing measure imposed by a WTO Member.
The United States has initiated investigations on certain subsidy programmes of the EU and its
Member States222, and is the WTO Member most frequently imposing countervailing measures on
imported products from EU Member States; at the end of 2001, 19 such orders were in place.223

(b)     State aid

122. According to Article 87 of the EC Treaty, "state aid is incompatible with the common market
if it: (a) is granted by a State through State resources; (b) distorts compe tition by conferring an
economic advantage on the recipient and granting aid selectively to 'certain undertakings' or for the
'production of certain goods'; and (c) affects trade between Member States". 224 Exceptions apply for
certain defined circumstances (e.g. aid of a social character, natural disasters), or may be approved to
meet certain horizontal objectives (e.g. regional development, environmental protection) or in specific
sectors (e.g., shipbuilding). Specific provisions of the EC Treaty apply to agriculture and fisheries
(Article 36), and transport (Article 73). The European Coal and Steel Treaty (ECSC) covers aid to
coal and steel (Articles 4, 54 and 95), and is set to expire on 23 July 2002, at which time the sector is
to be folded into the EC Treaty.

123. Under the procedural rules on state aid, Member States are required to notify proposed
measures to the Commission for an assessment of their compatibility with the EC Treaty.225 The
Commission is empowered to declare existing or proposed programmes to be incompatible with the
common market, and decide remedies, including termination, modification or repayment of grants. In
1999, the Commission issued negative decisions in 9% of notified cases, noting that 82% of cases
were cleared without review. 226 The number of notifications should decline as a result of the new
block exemption of various categories of state aid meeting horizontal objectives: training aid; de
minimis aid to enterprises (€ 100,000 over any period of three years); and aid in favour of small and
medium-sized enterprises (not more than 10% gross aid intensity for small enterprises and 7.5% for
medium enterprises).227

124. "Non-notified aid" is aid provided or committed without notification, or already been put into
effect when it is notified, or put into effect after being notified but before the Commission has reached
a decision. Of the 747 cases between the start of 2000 and January 2002, some 20% under
preliminary examination by the Commission were "non-notified aid" according to statistics made
available by DG Competition in its register of state aid cases (Table III.8). Non-notified aid that is
granted without Commission authorization is unlawful.



        221
              See Article XV of GATS.
        222
               United States Department of Commerce, Electronic Subsidy Enforcement Library [Online].
Available at: http://ia.ita.doc.gov/esel [23 February 2002].
          223
              WTO document G/SCM/N/81/USA.
          224
              DG Competition (2001), pp.72-73.
          225
              Council Regulation 659/1999.
          226
              COM(2001)412.
          227
              Commission Regulations 68/2001, 69/2001 and 70/2001, issued under Council Regulation 994/98.
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Table III.8
State aid cases, 2000 to January 2002
                                                                              MEMBERSa

              EU        B        DK       D        EL       E        F        IR         I        L       NL       A        P        FI       S        UK

    N             578       18    18          73    10          71       85      18      144          3    38          18       13    15          7     47
    NN            155       9         8       28        4       22       11        7         25       0        6       6        8         5       5     11
    E              14       0         0       2         0       0        2         4         3        1        0       1        0         1       0         0
    Total         747       27    26      103       14          93       98      29      172          4    44          25       21    21          12    58

a           B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;
            NL: The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.
Note:       N=notified; NN=non-notified; E=existing measure.

Source:     State Aid Register, Part I [Online].                 Available at:         http://europa.eu.int/commm/competition/state_aid/register/i
            [22 February 2002]

125. The Commission has issued a number of guidelines on its methods for assessing state aid.
During the period under review, it modified the guidelines for short-term export credit insurance,
reviewed those on environmental aid, and issued guidelines on risk capital, as well as on public
service broadcasting. The Commission has also clarified that public funding to provide risk capital or
promote the development of its supply is to be permitted, under conditions, on the argument that it
overcomes certain forms of market failure that impact especially on SMEs.228

126. In February 2002, the Commission issued a new framework for regional aid to large
investment projects to apply to all sectors for the period 2004-09, and to the motor-vehicle and
synthetic-fibre industries as of 2003.229 The new framework provides for horizontal treatment of such
projects, currently subject to sectoral rules. As a result, the Community framework on state aid to the
motor-vehicle industry granted as regional assistance was extended until 31 December 2002, with a
transitional mechanism in place for 2003.

(c)         Selected sectoral developments

Coal and steel

127. The Commission decided during the period under review on a new framework for coal aid
after the expiry of the ECSC Treaty in July 2002, which is to apply until 2010.230 Only four Member
States continue to produce coal (France, Germany, Spain, and the United Kingdom) and the
Commission has noted that, although most EU mines cannot compete with imported coal, these
Member States have chosen to support their coal mining industry on social and regional grounds.231
In 2000, the Commission authorised € 6.8 billion in state aid under the current framework, mainly to
cover operating losses, averaging € 192 per tonne, or € 76,405 for each of the 89,000 workers
employed in the industry. The Commission has expects current aid levels to be maintained until
2005, "after which State aid should fall to half of the amount granted in 1998". 232

128. The Commission has approved guidelines for the continuation of the prohibition of regional
investment aid and restructuring aid to the steel sector, which is also affected by the expiry of ECSC

            228
             OJ C 235, 21/8/2001. As part of its economic strategy, the EU has decided to implement a Risk
Capital Action Plan (RCAP) by 2003 to promote entrepreneurial activity.
         229
             European Commission Press Release IP/02/242.
         230
             COM(2001)423. See European Commission Press Release IP/01/1080.
         231
             DG Competition (2001).
         232
             COM(2001)423.
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Treaty.233 In 2000, the Commission authorized state aid of € 5.2 million for environmental and R&D
purposes.234

Shipbuilding

129. The ban on operating (contract-related) aid to shipbuilding came into effect on
31 December 2000 as foreseen; subject to conditions, permissible forms of state aid to the sector
continue to be: (i) regional aid for upgrading or modernizing installations; (ii) aid to cover closure of
shipyards; (iii) aid for rescue and restructuring of undertakings in difficulties; (iv) aid for innovation
in existing yards; and (v) aid to cove r expenditure on R&D or on environmental protection. 235
Contract-related aid amounted to € 632 billion for the period 1997-99, compared with € 622 billion
for rescue and restructuring aid, and was given mainly by Germany, France, Italy and Spain.

130. The Commission’s Trade Barriers Regulation complaint on subsidies to shipbuilding granted
by the Republic of Korea followed an assessment of the state of the world shipbuilding industry by
the Commission in which it concluded that the depressed state of prices for ships was due to the low
prices offered by shipyards in the Republic of Korea.236 The Commission stated that if an agreement
with the Republic of Korea was not reached by 1 May 2001237 , a complaint would be lodged at the
WTO, and a "defensive" system of support for certain ship types found to be injured by the disputed
practices would be proposed to the Council for the duration of the WTO proceedings; the proposal is
still under consideration by the Council.238

Aircraft manufacture

131. A number of Member States have announced their participation through "reimbursable" loans
in the development of the Airbus A380 "super-jumbo" aircraft launched in December 2000 for
delivery in 2006.239 The new model is intended to provide Airbus with a full range of models to
compete with Boeing, the other large aircraft manufacturer; each company holds about half the
market for aircraft sales. Although full details on the terms and conditions of the participation of the
Member States have not been made publicly available, total development costs are estimated at
US$12 billion. 240 The EU has confirmed that public support will be in conformity with the 1992
EC-US Bilateral Agreement, which provides for a ceiling of one third.241

(iv)    Intellectual property rights protection

(a)     Overview

132. There has been no change during the period under review in the basic structure of intellectual
property rights (IPR) legislation and its enforcement in the EU and the Member States, although the
Community has assumed a more significant role in the external dimension of IPR protection, which is
        233
             Commission Decision 2496/96/ECSC. See European Commission Press Release IP/02/241.
        234
             COM(2001)151.
         235
             Council Regulation 1540/98. See European Commission MEMO/00/90.
         236
             COM(2000)730, subsequently confirmed in COM(2001)219.
         237
              The "Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and
Repair Industry" was signed in December 1994 by the EC, the United States, Japan, the Republic of Korea, and
Norway. It was due to enter into force on 1 January 1996, but ratification by the United States is still pending.
See WTO (2000a), Vol. 1, p. 114, Box IV.5.
         238
             COM(2001)412.
         239
             Airbus online information. Available at: http://www.airbus.com.
         240
             United States Department of Commerce (2001a).
         241
             European Commission Press Release IP/01/587.
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set to be expanded under the (still-to-be-ratified) Treaty of Nice (Chapter II(3)). The Member States
legislate on IPR protection taking into account Community legislation242, and commitments under the
European Patent Convention (EPC)243, the WTO TRIPS Agreement, and the WIPO Convention and
treaties administered by WIPO. Community-wide (unitary) rights co-exist with national IPR regimes.
Enforcement of IPRs is at Member State level and the borders of the customs union.244

133. During the period under review, the EU has pursued policies designed to strengthen IPR
protection in the Community and abroad. Internally, the EU has adopted harmonizing directives
under the Single Market with respect to resale rights for the author of an original work of art, and
copyright and related rights for the digital environment245, and proposed harmonizing legislation on
the patentability of computer-implemented inventions.246 A new unitary right on a Community design
was created, adding to the existing Community trademark and Community plant variety. No
consensus was reached in the Council on the Commission’s proposal to create a "Community Patent",
a new unitary right, including a "Community Intellectual Property Court" for its enforcement247; the
Treaty of Nice, once ratified, could be used to establish such a court system.

134. Further measures were also announced to strengthen internal enforcement in the light of the
debate launched in 1998 on combating counterfeiting and piracy; customs authorities report a
substantial increase in seizures at the borders of the Community as a result of increased emphasis and
a growing volume of traded counterfeit and pirated goods (section (1)(i)).248 In November 2000, the
Commission suggested a harmonizing directive on enforcement of IPRs to go beyond the "minimalist
approach" of the TRIPS Agreement, which is to be presented in the course of 2002.249

135. In the TRIPS Council, the EU has sought establishment of a multilateral system for the
notification and registration of geographical indications for wines and spirits, in accordance with
Article 23.4 of the TRIPS A   greement, with a possible extension to other products (e.g., cheese). The
Doha Ministerial Declaration provides for the negotiation of a system for wines and spirits, while the
TRIPS Council could take up the issue of other products.250




        242
               According to the Commission, "both the Communities and their Member States have the possibility
to legislate in the area of patents and industrial property in general. But once the Communities have legislated
in one specific area, the Member States are no longer free to legislate or to derogate from Community law."
(WTO document IP/Q3/EEC/1, p. 8).
           243
               The EPC has 19 members, including all 15 Member States of the EU, Cyprus, Liechtenstein,
Monaco, and Switzerland. The Community is not a member.
           244
               Council Regulation 3295/94, as amended.
           245
               Directive 2001/29/EC. See European Commission Press Release IP/01/528. For background, see
"Green Paper on Copyrights and Related Rights in the Information Society" (COM(95)382) and
COM(1999)250.
           246
               COM(2002)92. See also European Commission Press Release IP/02/277 and MEMO/02/32.
           247
               COM(2000)412. See European Commission Press Release IP/00/714 and MEMO/00/414. The
legal basis for the Commission’s proposal is Article 308 of the EC Treaty, which concerns residual areas for
legislation, and requires adoption by unanimity in the Council after consultation with the European Parliament
(European Commission MEMO/01/451).
           248
               COM(98)569.
           249
               COM(2000)789. See European Commission Press Release IP/00/1385. The Commission is
considering presenting proposals harmonizing minimum thresholds for sanctions and criminal proceedings, and
to extend Europol’s powers to combat counterfeiting and piracy.
           250
               WTO document WT/MIN(01)/DEC/1.
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136. The Member States also participated in the revision of the EPC concluded on 29 November
2000.251 In addition to institutional improvements and revisions to improve patent filing and granting
processes, modifications were made to substantive provisions on patent law. In particular, the
definition of a patentable invention was amended to bring it into line with the TRIPS Agreement,
making it possible to obtain patents for "second medical use" of pharmaceutical compounds.

137. With some exceptions, the 15 Member States are parties to all the 19 treaties administered by
WIPO.252 In particular, all Member States provide protection of copyrights and neighbouring rights,
are parties to the Paris Convention (1883), and are required to be parties to the Berne Convention
(Paris Act of 1971) and the Rome Convention (1961).253 The EC and the Member States have signed
the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT)
concluded in 1996, and have decided to accede to these treaties, subject to ratification, upon
implementation of Community legislation on copyright and related rights in the information society,
to be transposed into national law by 22 December 2002 (see below). The EU and the Member States
participated in the negotiations that took place in Decembe r 2000 to conclude a protocol to the WPPT
on the protection of audiovisual performances (e.g., TV, film and video); these were however
inconclusive.254 The EU and its Member States are also participating in the negotiations to conclude a
new WIPO treaty on the protection of broadcasting organizations.

(b)      Patents

138. No new Community-level legislation on patents was adopted during the period under review,
and no change has occurred with respect to the alternatives available for filing for patents valid in the
EU Member States, which comprise: the national procedure; the unitary procedure available at the
European Patent Office (EPO) to obtain a European patent 255; or the international procedure under the
Patent Cooperation Treaty (PCT). With respect to the protection of plant varieties, applicants in
Member States may use either the national system, or the unitary procedure available at the
Community Plant Variety Office. Enforcement is also unchanged since the last review of the EU:
legal actions relating to the validity of a patent must be instituted in the Member State for which the
patent has been granted.

139. Information on patent applications filed during 2000 compiled by the trilateral web-site of the
EPO, the Japanese Patent Office (JPO), and the United States Patent and Trademark Office (USPTO),
indicates that almost all the activity of these three entities is devoted to each other’s membership
(Table III.9). The EPO received 100,692 applications for European patents in 2000, of which almost
half were filed from EPC members256; the rest were mainly from the United States (28%) and Japan
(17%). In 2000, the EPO granted 27,523 European patents, of which 49% were granted to EPC
members and the remainder mainly to Japan and the United States. The Community Plant Variety
         251
               "Act Revising the Convention on the Grant of European Patents" (29 November 2000) [Online].
Available at: http://www.european-patent-office.org [22 February 2002].
          252
              WIPO online information. Available at: http://www.wipo.org/eng/ratif/doc/index.htm.
          253
              In 1999, the Commission initiated infringement proceedings with respect to Ireland, which has not
joined the Paris Act of the Berne Convention, and Portugal, which has not joined the Rome Convention (1961).
          254
                The main disagreement concerned the law applicable to a transfer of economic rights from the
performer to the film producer or others (DG Internal Market (2000)).
          255
              In practice, the first filing generally takes place at the national level to secure a priority date,
followed within one year by an EPO filing. Applicants can avail themselves of the accelerated search and
examination procedures offered by certain national patent offices to obtain an early indication of patentability
before deciding to proceed with an EPO and/or wide international filing. See Japanese Patent Office and
European Patent Office (2001), Section 4.1.
          256
               Germany (43.6%), France (14.9%), the United Kingdom (12.3%), and Italy (7.5%). See Eurostat
News Release 42/2001.
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Office received 2,200 applications in 2001, and approved 1,500 applications. The Office for
Harmonisation in the Internal Market received 60,000 applications for the Community Trademark in
2001.257

Table III.9
Patent statistics, 1999-00

                                                                                                 United States Patent and
                                    European Patent Office             Japanese Patent Office
                                                                                                   Trademark Office
                                     1999            2000              1999             2000      1999             2000
 Applications                       89,322         100,692       405,655               436,865   270,187          295,926
 Country of origin (% share):
 - EPC                                  50              49          5                     5        17               15
 - Japan                                16              17         89                    89        18               17
 - United States                        28              28          5                     5        55               55
 - Other                                 5               5          1                     2        10               12
 Patents granted                    35,357          27,523       150,059               125,880   153,493          157,497
 Country of origin (% share):
 - EPC                                 51               49              5                 5        9                 9
 - Japan                               26               27             89                89        20               20
 - United States                       20               20              4                 4        55               54
 - Other                                3                4              2                 2        9                 9

Source:    Japanese Patent Office and European Patent Office (2001).

140. The Commission has issued two proposals since the last Review of the EU in mid-2000: a
proposed regulation on a "Community Patent", including a "Community Intellectual Property Court"
for its enforcement, to co -exist with the national and EPC regimes; and a proposed Directive
harmonizing national legislation with respect to patents on computer-implemented inventions. The
first proposal highlights the barrier to R&D posed by the translation costs of patents obtained in
Member States, which also are assumed for European patents granted by the EPO.258 The proposed
Community patent would be granted by the EPO, would be valid in all 15 Member States and would
not require translation into all 15 official languages of the Member States, but only into the three
working languages of the EPO.

141. The Commission has justified its proposal for a Community court to enforce the Community
patent on the grounds that "only a centralised Community court can guarantee without fail unity of
law and consistent case law". The Court’s jurisdiction would cover the entire territory of the
Community and its judgements would be enforceable throughout the Community. The Commission
notes that it would represent a significant economy of cost for patent holders and other litigants, since
only one legal action would be required. Discussions in the Council on the proposal for the
Community patent and a court for its enforcement have focussed on a number of political issues: the
language and translation regimes, the role of national patent offices, financial arrangements, the
jurisdictional system, and the relationship between the Community patent and the EPC.

142. The Commission has also proposed harmonizing legislation for patents on software
("computer-implemented inventions").259 The basis of the proposal is the practice established by the

           257
             European Commission SPEECH/01/247.
           258
             The Commission estimates the average cost of a European patent (designating eight countries) at
€ 30,000 with translations accounting for 39% of the costs, significantly higher than in other jurisdictions.
Taking into account all costs and fees, the Commission estimates the cost at € 49,900, compared with € 10,330
in the United States and € 16,450 in Japan. For complaints on the level of costs see, for example, USTR (2001),
p.124.
         259
             COM(2002)92. See also European Commission Press Release IP/02/277 and MEMO/02/32.
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EPO and confirmed in the courts of Member States where litigation has taken place, whereby a patent
can be granted for an invention whose novel features are realized through the execution of software,
provided a "technical contribution" has been made. Although the EPC provides that computer
programs as such are not patentable260, the Commission notes that over 30,000 software-related
patents have been granted by the EPO and national patent offices.261 Resolving this ambiguity and
preventing new potentially divergent Member State legislation on the issue is another justification for
the proposal. The Commission is also of the view that an added incentive would be created to invest
in R&D for e-commerce applications, with an important downstream impact on employment in the
sector. A study for the Commission on the economic impact of patentability of computer programs
however shows that "the theoretical and other economic literature does not demonstrate, indeed casts
doubt, whether economic efficiency, i.e. increased overall welfare, is achieved by having or making
computer programs patentable". 262

(c)      Industrial designs

143. As was noted at the time of the last review of the EU, applicants for rights of protection with
respect to industrial designs may use: the national procedure (including the Benelux Design Office),
or international arrangements that have effect in the Member State.263 With respect to national
regimes for the legal protection of designs, Member States were required to have transposed by
28 October 2001 the Community legislation harmonizing the national provisions on design protection
that most directly affect the functioning of the Internal Market, in particular the definition of "design"
and the conditions of protection. 264 In December 2001, the Council adopted the Regulation on a
Community design which, like the Community trademark and the Community plant variety, confers
rights throughout the Community. 265 To be eligible for protection, designs must be new and have an
individual character. The term of protection is up to 25 years.

144. Two types of design protection are provided: the Registered Community Design, which may
be obtained at the Office for Harmonisation in the Internal Market, as from 2003; and the
Unregistered Community Design, which will benefit from protection as of March 2001 provided the
requirements for protection are met. The main benefit of registration is that protection will be granted
against both deliberate copying and the independent development of a similar design, while the
unregistered variant is protected only against deliberate copying.

(d)      Copyright and neighbouring rights

145. Member States provide protection of copyrights and neighbouring rights, within the
framework of harmonizing Community legislation on computer programs, rental and lending rights,
satellite broadcasting and cable transmission, the term of protection, and databases.266 Two new
         260
                Copyright protection, however, applies under Article 10 of the TRIPS Agreement, and Directive
91/250/EEC. See COM(2000)199 for a report on the implementation of the Directive.
           261
                European Commission Press Release IP/00/1187. It should be noted that the EPC, as revised in
2000, excludes from patentability computer programs "as such".
           262
               Hart., Holmes and Reid (2000).
           263
               France, Germany, Greece, Italy, Spain, and the Benelux countries are parties to the Hague
Agreement.
           264
               Directive 98/79.
           265
               Regulation 6/2002. See European Commission Press Release IP/01/528.
           266
               Directives 91/250/EEC, 92/100/EEC, 93/83/EEC, 93/98/EEC, and 96/9/EC. The duration of
copyright in a literary or artistic work is 70 years after the death of the author of the work or the date on which
the work was lawfully made available to the public; for related rights it is 50 years. A work originating in a
third country or whose author is not a Community national is protected for the same period as in the country of
origin up to the ceiling of the Community term of protection.
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harmonizing laws have been adopted since mid 2000: in May 2001, the Directive on the
harmonisation of certain aspects of copyright and related rights in the information society, to be
transposed into national law by 22 December 2002267; and in June 2001, the Directive on the resale
right for the benefit of the author of an original work of art, to be transposed into national law by
1 January 2006, with implementation of certain provisions delayed until 2010 or to 2012.268

146. The new copyright legislation has two objectives:                    to implement the Community's
international obligations under the WCT and WPPT (see above), and to ensure a harmonized legal
framework for copyright protection and related rights in EU Member States, including, but not
restricted to, information society services, complementing the existing EU-wide framework for
copyright and related rights.269 The Directive harmonizes rights of reproduction, communication and
distribution for rightholders, and introduces the new "making available right". There is a mandatory
exception to the right of reproduction for certain technical copies made in the transmission over
networks of the protected work; the other exceptions are optional and include, inter alia, exceptions
for private use, libraries, educational establishments, and museums, subject to fair compensation in
certain instances. The Directive also requires that rightholders are to provide the means for
beneficiaries of particular exceptions to access protected material shielded by anti-piracy measures.
With respect to distribution, the principle of Community exhaustion applies, rather than international
exhaustion, with the result that parallel imports are permitted throughout the Community, while the
rightholder retains protection against parallel imports from third countries.

147. The Directive on resale rights provides for payment of a percentage of the resale price of a
work of art to the artist, or the heirs, for the term of protection of the copyright (70 years after the
death of the artist). Once the legislation is fully implemented, the EU will be the only major art
market in which the resale right will exist, as the United States and Switzerland do not have similar
requirements in place; the Commission intends to pursue the international recognition of resale rights
to ensure a level playing field for the art market. The minimum threshold for resale rights to apply is
set at € 3,000 per work of art, although a lower limit may be set by a Member State, and the resale
right is set at 4% for these lower limit thresholds. At higher thresholds for sale prices of works of art,
a tapering scale of rates applies: 3% for the band from € 50,000 to € 200,000; 1% for the band from
€ 200,000 to € 350,000; 0.5% for the band from € 350,000 to € 500,000; and 0.25% for any amount
over € 500,000. The maximum resale right an artist can receive on any one resale is € 12,500.




        267
              Directive 2001/29/EC. See European Commission Press Release IP/01/528. For background, see
Green Paper on Copyrights and Related Rights in the Information Society (COM(95)382) and COM(1999)250.
          268
              Directive 2001/84/EC. See European Commission Press Release IP/01/1036. Resale rights may be
restricted to apply to living artists only up to 2010, and may be extended to 2012. The Commission notes that
the time limit for transposing the Directive is exceptionally long, and must remain so to maintain effectiveness
of Community action in the Single Market.
          269
               Directives 91/250/EEC (computer programs), 92/100/EC (rental and lending rights for authors),
93/83/EEC (satellite broadcasting and cable retransmission), 93/98/EEC (term of protection), and 96/9/EC
(databases).
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IV.           DEVELOPMENTS IN SELECTED SECTORS

(1)           AGRICULTURE1

(i)           Main characteristics 2

1.      The cultivated surface area of the Community covered some 130 million hectares in 2000
(Table IV.1). Agriculture (and hunting, forestry and fishery activity) accounted for 4.3% of the
employed civilian population of the 15 Member States in 2000, down from 4.7% at the time of the last
Review. In relation to 30 years ago, Eurostat notes that the sector has lost 49% of its work force in
the nine Member States whose membership in the EU spans that time period, due to "the reduction in
the number of holdings, to the increased size of holdings, to the concentration of labour in bigger
holdings, and to gains in productivity".3
Table IV.1
Selected agricultural statistics for Member States, 2000 and 2001
                                                                          Share of        Share of
                                                                         household      employment             Real income
                           Utilized area         Final agricultural
                                                                      expenditure on     in civilian
                                                    production        food, beverages     working              (1995=100)
                                                                        and tobaccoa     populationb
                           ('000 hectares)          (€ million)             (%)              (%)        2001            % change
                                                                                                                        from 2000
     Austria                       3,399                      4,964             15.2           6.1         97.1              10.9
     Belgium                       1,396                      6,928             16.9           1.9        101.4               5.3
     Denmark                       2,666                      8,324             17.7           3.7        107.1              12.3
     Finland                       2,211                      3,640             18.7           6.2        120.7               4.7
     France                       29,865                     62,281                ..          4.2        108.6               0.7
     Germany                      17,067                     43,823             15.7           2.6        123.9               9.9
     Greece                        3,901                     10,662             21.3           17          99.4               1.5
     Ireland                      4,418a                      5,811             18.2           7.9        101.8               7.8
     Italy                       15,401 a                    41,065             17.5           5.2        115.0               0.2
     Luxembourg                      135                        252                ..          2.4         98.6              -0.6
     Netherlands                   1,976                     19,202             14.8           3.3         83.8               2.4
     Portugal                      3,881                      5,558             22.7          12.5        119.1              11.8
     Spain                        25,425                     33,265             18.7           6.9        118.2               2.6
     Sweden                        2,980                      4,964             16.8           2.9        122.5               5.0
     United                       15,722                     24,028             17.8           1.5         60.5               3.5
     Kingdom
     Total                      130,443                     274,768             17.0           4.3        107.6               3.3

a             1999.
b             Agriculture, hunting, fishing and forestry.
..            Not available.

Source:       DG Agriculture (2002), Table 2.0.1.2; and information provided by Commission officials.

2.     Agricultural income rose by 3.3% in 2001, mainly due to the continuing reduction in the
volume of agricultural labour input (down 2%), although Member States’ individual experiences were


              1
            Annex 1 of the WTO Agreement on Agriculture defines the scope of agriculture as HS Chapters 01 to
24 less fish and fish products (Chapter 3), plus selected items from Chapters 29, 33, 35 38, 41, 43, 50, 51, 52
and 53.
          2
            DG Agriculture (2002).
          3
             Eurostat, "Thirty years of agriculture in Europe: Changes in agricultural employment", Theme 5 –
14/2001.
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highly divergent, and higher real agricultural income (up 1.2%).4 The strongest growth rates were
observed in Denmark, Portugal, Austria, Germany, Ireland, and Belgium. In 2001, real incomes were
                                                                                   -
above their 1995 levels in 10 of the 15 Member States, with the sharpest decline ( 39.5%) in the
United Kingdom. However, farmers often complement their agricultural income by non-farm sources
of income.

3.       In terms of value, milk continues to be the single most impo rtant agricultural product
category, accounting for 13.8% of EU agricultural production. 5 Milk is also important in the
agricultural production of most Member States, which may explain the political sensitivity of reform
in the sector (see below). Cattle is another leading agricultural product, contributing at least 5% of
agricultural production in all Member States except Greece. This explains the magnitude of the ripple
effects from the crisis of confidence of consumers in eating meat as a result of cases of Bovine
spongiform encephalopathy (BSE) and foot-and-mouth disease (FMD) in 2000 and 2001 (see below).

4.       The EU is self-sufficient in most agricultural products subject to the Common Agricultural
Policy (CAP). The highest level of self-sufficiency (domestic production divided by consumption) is
attained in whole-milk powder (370%), followed by skimmed milk powder (247%), sugar (128%),
wheat (120%), and butter (116%); exports are therefore an important outlet for domestic production.
In 1999, EU exports of individual commodities accounted for a substantial portion of world trade:
wine (41.5%), milk powder (32%), cheese (31.9%), butter (20.5%), wheat (15.1%), and sugar
                                                                                        ith
(13.5%). The EU was the world's leading importer of agricultural products in 2000, w imports of
US$63 billion (20.6% of total world trade), and the leading exporter, with exports of US$60.2 billion;
agricultural products accounted for 6.2% of the EU's exports and 5.7% of its imports.
(ii)    Common Agricultural Policy (CAP)

(a)     Overview

5.       The main mechanisms of the CAP are guaranteed common prices and Common Market
Organisations (CMOs) for 18 product categories. According to the Commission, one type of CMO –
which includes arable crops (cereals, oilseeds, protein crops), beef and sheepmeat – provides direct
aid to producers linked to factors of production such as land or livestock, subject to reference periods
and production-limiting programmes; a second type of CMO – covering olive oil, tobacco, cotton,
certain processed fruit and vegetables such as citrus fruit, tomatoes, prunes, and table wine – provides
direct aid that is proportional to production levels, but is also subject to ceilings based on historical
levels of production; a third type of CMO – dairy products and sugar – provides support within
production quotas, whose cost is mainly borne by the consumer; and a fourth type allows the market
to fluctuate with a minimum of intervention, and applies to fruit and vegetables, quality wines,
pigmeat, poultry meat, eggs, and honey.

6.       A significant development during the period since the last Review of the EU is the reform of
the banana regime to settle the longstanding WTO dispute settlement proceeding on the matter
(Chapter II(4)), which entered into effect on 1 July 2001.6 The settlement provides for the
introduction of a tariff-only regime as from 1 January 2006 at the latest, with WTO waivers covering
the transitional period. Other policy developments during the period under review concerned: price
decreases for cereals and bovine meat, as a greed at the Berlin European Council in 1999 (see below);
the integration of flax and hemp into the arable crop system7; the simplification of arrangements for

        4
            Eurostat News Release 49/2002.
        5
            DG Agriculture (2002), Table 3.1.1.
        6
          Council regulation 216/01. See European Commission Press Release IP/01/628.
        7
          European Commission Press Release PRES/00/264.
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payments for the processing of certain fruit and vegetables (tomatoes, peaches and pears, citrus fruit)8;
the extension of the sugar regime until 2006 (see below); and the extension of the milk-quota regime
until 2008 (see below). Proposals made by the Commission during the period under review address:
the reform of the rice regime to integrate the crop into the arable crop system to ensure full
substitutability across all covered crops9; and the reform of the sheepmeat regime.10 A mid-term
review is under way in the course of 2002, focussing notably on the cereals, beef, and milk subsectors,
with potential for adjustment of objectives and/or funding. It should also be noted that agricultural
product markets are affected by standards of animal health and food safety (Chapter III(1)(viii)).

7.       The amount spent on the CAP was € 40.4 billion in 2000, accounting for around 43.9% of
Community expenditure (Chapter III(3)(iii)). Expenditure is channelled mainly through the European
Agricultural Guarantee and Guidance Fund (EAGGF)11, managed by Member States and monitored
by the Court of Auditors.12 The objectives and funding for the CAP for the period 2000-06 were set
in the context of the political agreement on Agenda 2000 reached at the Berlin European Council of
March 1999.13 Appropriations for the guarantee section of the EAGGF for 2001 were € 44 billion, up
9% from € 40.5 billion in 2000.14 France received the largest share of EAGGF assistance in 2000, in
line with its 22.7% share in overall EU agricultural production, followed by Germany, Spain, and
Italy (Table IV.2).

Table IV.2
EAGF Guarantee and Guidance expenditure by Member State, and national expenditure on agriculture, 2000
                          Share in EU             EAGF          EAGF                     Share in        National expenditure on
                                                                             Total
                           production          Guarantee      Guidance                    total                agriculture a
                              (%)              (€ million)   (€ million)   (€ million)     (%)                  (€ million)
    Austria                       1.8             1,019            7         1,026          2.5                             884
    Belgium                       2.5               955            5           960          2.3                             395
    Denmark                       3.0             1,305            0         1,305          3.1                             286
    Finland                       1.3               728           16           744          1.8                           1,385
    France                       22.7             8,982           94         9,076         21.7                           3,243
    Germany                      15.9             5,642          310         5,952         14.2                           1,600
    Greece                        3.9             2,597           43         2,640          6.3                             135
    Ireland                       2.1             1,678           36         1,714          4.1                             397
    Italy                        14.9             5,031          384         5,415         12.9                          1,655 a
    Luxembourg                    0.1                21            0            21          0.1                             34 c
    Netherlands                   7.0             1,397            2         1,399          3.3                           1,090
    Portugal                      2.0               652          405         1,057          2.5                             295
    Spain                        12.1             5,469           13         5,482         13.1                          1,372a
    Sweden                        1.8               798           16           814          1.9                             420
    United                        8.7             4,059           57         4,116          9.8                           1,111
    Kingdom
    Total                      100.0            40,467         1,387        41,854        100.0                          14,302

a            Provisional data.
b            Data do not include regional expenditures.
c            1999.

Source:      DG Agriculture (2002), Tables 2.0.1.2 and 3.4.10.


             8
             European Commission Press Release IP/00/772.
             9
             European Commission Press Release IP/00/584.
           10
              European Commission Press Release IP/01/708.
           11
              Council Regulations 1260/99 and 1257/99.
           12
              Court of Auditors (2001).
           13
               Berlin European Council, 24 and 25 March 1999, Presidency Conclusions [Online].                       Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [15 March 2000].
           14
              DG Agriculture (2002),Table 3.4.4.
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8.        In terms of products, the largest share of EAGGF expenditure was devoted in 2000 to arable
crops (41.2%), followed by beef and veal (11.2%); emergency measures were taken in 2001 for beef
and veal in the light of the renewed crisis in confidence (see below). Member States also make
expenditures on agriculture, estimated at € 14.5 billion in 2000. Although national expenditures have
remained at about the same level since 1995, this is mainly the result of a steep decline in national
expenditure on agriculture by Germany since then (down 40%), as national expenditures rose rapidly
in Ireland (up 322%), Portugal (122%), the Netherlands (74%), Sweden (67%), Belgium (64%), and
the United Kingdom (60%). The trend to increasing national expenditure is likely to have continued
in 2001 as a result of emergency funds granted to agricultural producers affected by FMD, BSE, and
the crisis in confidence in meat.

9.       When internal prices exceed world market levels, tariffs are the basic mechanism at the
border, with imports mainly taking place within tariff quotas. The simple average tariff on
agricultural products was estimated at 16.1% in 2002 (Chapter III(1)(iv)). However, this estimate
does not factor-in the tariff treatment of imports under tariff quotas, which provide for reduced or
duty-free treatment up to a ceiling quota level; estimates refer to out-of-quota imports only. The
estimate also does not include the "snapback" tariffs imposed by the EU when using the special
safeguard (SSG) regime of the WTO Agreement on Agriculture, which continued to be used during
the period under review (Chapter III(1)(vii)). In general, tariffs are low on agricultural products not
produced in the EU (e.g., coffee, tea, spices), but are considerably higher on primary CAP products
and products processed therefrom (Table AIII.1).

10.      Another policy instrument at the border is the refunds needed for the purpose of exporting
surplus Community production, subject to limits on the value and volume of subsidized exports under
the WTO Agreement on Agriculture. The Commission notified an allocation of € 5.6 billion to
export subsidies in the marketing year 1999-200015, principally to milk and milk products (30%),
sugar (25%), arable crops (15%), and beef meat (12%). The amounts involved for milk and milk
products represented an increase over the allocation for the previous marketing year of 1998-99 16,
within the export subsidy roll-over limits, to permit stocks to be run down (see below).

11.      The OECD evaluates the level of assistance granted by its members to their domestic
producers from all interventions in relation to prices of key CAP products on world markets (producer
support estimates or PSE).17 Aggregate EU support to agricultural producers declined in 2000 to
                                                                                 o
US$90.2 billion, from an estimated US$114.9 billion in 1999, mainly due t world market prices
rising faster than domestic prices, as well as currency movements, rather than changes in policy: In
absolute terms, the EU provided more support to its producers in 2000 than any other OECD
members, ahead of Japan (US$59.9 billion) and the United States (US$48.9 billion).

12.      In percentage terms, the PSE of the EU declined to 38% in 2000 from an estimated 43% in
1999, and remains below the peak level of 44% reached in 1986-88; in comparison, the OECD
estimated the PSE of Japan at 64% in 2000 and that of the United States at 22%.18 The PSE declined
in all product categories in 2000, with the exception of poultry and oilseeds (Table AIV.1), with the
highest level of support given to the beef and veal sector (a PSE of 75%), followed by poultry (57%),

        15
             WTO document G/AG/N/EEC/32.
        16
             WTO document G/AG/N/EEC/23.
          17
             OECD (2001a).
          18
             The PSE has a broader scope than the Aggregate Measurement of Support (AMS), which is the basis
for commitments under the WTO Agreement on Agriculture. The AMS exempts certain forms of "blue-box"
support (G/AG/N/EEC/17). The PSE methodology compares domestic product prices with current world
market prices, while the AMS compares current administered domestic prices with a fixed external reference
price calculated for the base period 1986-88 (WTO, 1995, Vol. 1, p. 79).
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sheepmeat (52%), and sugar (49%). The OECD has also found that CAP reforms have shifted the
composition of support to producers in the EU from market price support (59%) to payments made on
the basis of area planted or herd sizes (25%). In a study of the economic effects of the EU’s policies
released in 2000, the OECD noted that "agriculture has traditionally been the most protected sector in
the Community". 19

(b)      Future directions for the CAP

13.      The prospect of enlargement continues to pose a challenge to financing the CAP. In
January 2002, the Commission proposed to finance the addition of ten new Members (eight from
Central and Eastern Europe and two from the Mediterranean) as of 2004 within the existing funding
guidelines through a progressive introduction of direct payments: equivalent to 25% of the present
system in 2004, rising to 30% in 2005, to 35% in 2006 and to 100% in 2013.20 In terms of
expenditure, the payments would be: € 2.1 billion in 2004, € 3.6 billion in 2005 and € 3.9 billion in
2006. The Commission is of the view that this progressivity is needed to preserve incentives to
restructure small and semi-subsistence farms in the acceding countries, but new Members would be
allowed to top-up payments to farmers.

14.    The EU has also been an a    ctive participant in the negotiations under Article 20 of the WTO
Agreement on Agriculture to continue the reform process in the sector. These negotiations began in
March 2000 and are now part of the DDA.21

15.     Also of significance to the future of the CAP is the decline of public confidence in the
programme, which has been attributed by the Commission to renewed concerns over BSE and the
outbreak of FMD (see below). Although most respondents to a survey on the issue continued to
endorse the objective of healthy and safe products for agricultural policy, only 37% agreed, in mid
2001, that the EU’s policy was fulfilling its role down from 52% in September 2000.22 This decline
has occurred despite the measures taken to meet food safety concerns (Chapter III(1)(viii)).

(iii)    Developments in selected subsectors

Arable crops

16.     One quarter of all arable land is devoted to cereals, of which just under half is planted to
wheat. The area under cereals cultivation was 35.7 million hectares in 1997, about the same as in
1987, but land set-aside following the 1992 CAP reform has reduced surfaces cultivated, mainly for
barley; 5.7 million hectares in marketing year 2000/01 were set aside. Despite the reduction in
surfaces cultivated, Eurostat notes that "production was hardly checked and yields rose steadily". 23
Cereal production (excluding rice) in EU-15 reached a new record level of 211 million tonnes in
2000, due to the combined effects of enlargement in 1995 and increased yields.

17.    During the period under review, the Commission implemented the 15% reduction agreed in
May 1999, to the intervention price at which agencies must buy in cereals: from € 119.19/tonne in
marketing year 1999/00 to € 110.25/tonne in marketing year 2000/01 to € 101.31/tonne for marketing

         19
             OECD (2000).
         20
             European Commission Press Release IP/02/170 and MEMO/02/13.
          21
              European Commission MEMO/01/28, SPEECH/00/497 and SPEECH/01/473. The EU’s proposals
are available at: http://europa.eu.int/agriculture.
          22
               European Commission Press Release IP/01/1636.                   See Eurobarometer Flash Survey 85 and
Eurobarometer 55.2 [Online] Available at: http://europa.eu.int/agriculture [5 February 2002].
          23
             Eurostat, "Thirty years of agriculture in Europe: Cereals still the staple crop", Theme 5 – 15/2000.
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year 2001/02; further modifications could be made in the context of the mid-term review of the CAP
under way in 2002. The impact of reduced intervention prices on farm incomes is being partly
compensated (50%) by an increased area payment: from € 54.34/tonne in marketing year 1999/00, to
€ 58.67/tonne in marketing year 2000/01, to € 63/tonne for marketing year 2001/02 for an indefinite
period. The area eligible for payment is subject to ceilings set in regionalization plans, and to a
minimum 10% set-aside obligation.

18.      For oilseeds, the Community intends to align area payments on those for cereals for
marketing years from 2002/03 onwards to ensure horizontal incentives across crops.          The
Commission anticipates an increasing use of oilseeds for animal feed purposes, substitut ing for
mammalian meat and bone meal (MBM), banned in the wake of the BSE crisis. The EU is the
leading importer of oilseeds on the world market, accounting for 34% of world imports.

19.     For the future, the Commission issued cereal market projections in July 2001 for the period
2001-08, which foresee a balanced cereals market, except for rye where an accumulation of stocks is
foreseen. 24 The Commission anticipates that export subsidy commitments would continue to be
respected. The Commission notes, however, that these projections for cereals depend on a favourable
external and internal economic environment and an exchange rate that continues to ensure export
competitiveness for Community cereals production.

Beef

20.      During the period under review, the beef subsector was severely affected by a renewed crisis
in public confidence regarding consumption of meat due to cases of BSE in cattle, linked to Variant
Creutzfeld-Jakob Disease (VCJD) in humans.25 At the time of the last review in mid 2000, the first
beef crisis of 1996 appeared to have been resolved, with consumption back up to the pre-BSE level in
the EU as a whole, and a resumption of exports to traditional markets. The Community started
implementing the 20% cut to the support price for beef and veal in three equal steps of € 214, starting
in the marketing year 2000/01, with the goal of reaching € 2,780/tonne in marketing year 2002/03.
Intervention has been eliminated and replaced with a private storage scheme. The impact of reduced
intervention prices on farm incomes has been partly compensated by an increased livestock unit
payment, subject to ceilings.

21.      Renewed food safety concerns caused a brutal reversal of the situation in Q3 2000, and
bovine meat consumption ended the year down by 5% and exports down by about one third, with
another 6% decline in consumption in 2001. A key factor was the rising number of Member States
detecting cases of BSE26, despite the ban as from 1994 on the feeding of mammalian MBM to
ruminants, demonstrating the risk from cross-contamination of feed for ruminants with feed for other
species.27 The crisis accelerated as a result of the outbreak of FMD in the sheep population of the
United Kingdom in February 2001, leading the Commission to require Member States to impose bans
on imports of all live animals and meat products from affected areas within the Community.28 Bans
were also applied by trading partners; in early 2001, the Commission reported that 94% of third
country markets for EU beef exports were blocked due to temporary FMD and BSE measures by third

        24
              DG Agriculture (2001).
        25
              European Commission MEMO/00/89.
           26
                Office International des Epizooties online information.  Available at:   http://www.oie.int
[3 February 2002].
           27
              European Commission SPEECH/01/116.
           28
                 For a chronology of events, see Europa online information.                 Available at:
http://europa.eu.int/comm/food/fs/ah_pcad/ah_pcad_47_en.pdf [26 March 2002].    For a discussion of the
implications see European Commission MEMO/01/123.
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countries.29 On 21 January 2002, the OIE declared that the United Kingdom had regained its status of
FMD-free without vaccination, joining other Member States in this respect.

22.       As of March 2002, third-country bans related to FMD had been removed for the most part,
while those related to BSE remained in place. (All intra-Community bans related to BSE have been
lifted, with the exception of France, whose ban on imports of beef from the UK has been the subject
of an infringement proceeding.30) Third countries have generally banned imports from the EU of live
cattle, beef, and several other products of animal origin.

23.      Following the onset of the crisis of confidence in late 2000, the Commission decided to
encourage the slaughter of animals (purchase-for-destruction for animals over 30-months old not
tested for BSE31, and special purchase scheme to stock negative-tested meat 32) and the reduction of
suckler cows, thus rebalancing supply of cattle to lower meat demand levels.33 The Commission also
intends to encourage organic beef farming and extensive production methods. Emergency financial
assistance was granted at Member State level to compensate farmers for income losses.34

24.     Measures have also continued to be taken during the period under review to restore public
confidence in meat by addressing risk throughout the supply chain from the stable to the consumer.
On 17 July 2000, the EU decided on a system for the identification and registration of cattle and the
mandatory labelling of beef products sold to consumers as from 1 September 2000 to ensure full
"traceability" from farm to fork; third countries are also required to observe these labelling
requirements, but for imports of beef products, only the identification of the country of origin is
mandatory.35      The Commission has also mandated BSE-testing of all animals older than 30 months
as of 1 January 2001, and consolidated all BSE-relevant legislation.36 A ban on mammalian MBM in
all animal feed was put into place as of 1 January 2001, and has been extended without deadline,
pending a new policy on animal by-products.37

25.      Other measures taken include the removal of specified high-risk materials (SRM) as of
1 October 2000, applied equally in the EU and to imported products, except from countries classified
in category 1 of "Geographical BSE Risk (GBR)", which is the highest risk category.38 GBR
assessment, category 1 to 5, is conducted by the Scientific Steering Committee of the EU according to
established methods last revised in January 2002. These methods include an assessment of the
exposure of the country to BSE as a result of imports of live animals from the EU and responses by
the country to a questionnaire. According to the Commission, the categories of countries and the
measures to be applied are in line with the international standards of the Office International des
Epizooties (OIE).

26.     Although not directly related to BSE, the legislation banning hormones as growth promoters
was revised as of 1 July 2001, on the basis of scientific evidence collected by the Commission.39 The

        29
          European Commission MEMO/01/107.
        30
          Court of Justice Press Release 68/2001.
       31
          European Commission Press Release IP/00/1456.
       32
          European Commission Press Release IP/01/302.
       33
          European Commission Press Release IP/01/195.
       34
          European Commission MEMO/01/55.
       35
           Regulation 1760/2000. See European Commission Press Release IP/00/799.         See European
Commission Press Release IP/01/1913 for tighter rules applicable from 1 January 2002.
       36
          Regulation 999/2001. See European Commission Press Release IP/01/641.
       37
          European Commission MEMO/01/236.
       38
          European Commission Press Release IP/01/490.
       39
          European Commission Press Release IP/00/519.
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original legislation was the subject of a WTO dispute settlement proceeding in the context of which
certain, mainly agricultural, EU exports have undergone sanctions in Canada and the United States.
Modifications of the Directive to bring EU legislation into compliance with the WTO ruling are
currently under discussion in the Council and the European Parliament.40

Dairy

27.      The reform of the dairy subsector is politically sensitive due to its importance in most
Member States. The reform agreed as a result of the Berlin European Council of March 1999 is to
start as of 2005/06, with a cut of 15% in three equal steps for the intervention prices for butter (€
328.20/tonne) and skimmed milk powder (€ 205.52). The milk-quota regime, according to which
production is capped in each Member State (109 million tonnes for the EU as a whole) and subject to
a "dissuasive" levy in the event of over-runs, has been extended until March 2008. As compensation
for the 15% price decline , an increase of 2.4% in quota levels is to be implemented as from marketing
year 2002/03. However, the mid-term review of the CAP in 2002 may lead to changes being made.

28.      The Court of Auditors published a special report in 2001 on the milk-quota system in relation
to the objectives of controlling production and achieving market equilibrium.41 The report notes that
the quota regime, which was introduced in 1984, has successfully managed production with minimal
out-of-quota production (less than 1%). However, with regard to the objective of market equilibrium,
it notes that the level of the quota is too high in relation to demand, leading to structural surplus: of
the total 120 million tonnes produced, 15 million tonnes are sold on world markets using subsidies,
and 10 million tonnes are sold internally. The quantity of skimmed milk powder in storage rose by
60% between 1997 and 1999, although stocks were reduced in 2000 by use of export subsidies (see
above). Other weaknesses identified in the report include the fact that the consumer is "still paying a
considerably higher price for his milk", and that "substantial financial support will still be necessary
for the disposal of milk surpluses", which would probably be increased upon enlargement. The report
concludes that the Commission should "make already in 2002 proposals for a fundamental reform of
the dairy sector to achieve equilibrium between overall milk production and unsubsidised internal
consumption plus potential unsubsidised exports and should provide for the ending of the quota
regime while ensuring a fair standard of living for dairy farmers".

29.      The Commission, in its responses, notes that the Court’s report implies a 20% cut in quotas to
achieve market equilibrium, but points out that "adapting milk production to the level of internal
consumption was neither a political nor an economic objective" of the Council. In its view, the quota
regime has been a vital tool in restraining the budgetary cost of the milk CMO, the elimination of
which would have a very substantial budgetary cost. It rejects the criticism of the cost to consumers,
stating that "the Commission does not feel that liberalisation of the milk market on the same basis as
for cereals, would, generally speaking, mean lower costs to consumers".

30.      Although not treated as such by the Court of Auditors or the Commission, the trade
implications of the milk CMO are considerable. As noted above, the EU has a very high self-
sufficiency ratio in milk powder and other dairy products, which reduces the scope for imports from
third countries. Refunds are required to export surplus Community production, crowding out
opportunities for unsubsidized trade. The EU accounted for a substantial share in world trade of dairy
products in 1999.



        40
            COM(2001)320.
        41
             Court of Auditors, "Special Report No. 6/2001 on milk quotas, together with the Commission’s
replies" (OJ C 305/1 of 30/10/2001).
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Sugar

31.      On 1 July 2001, the arrangements on intervention prices and production quotas in the sugar
CMO were extended for an additional five -year period to expire in 2006. While the Commission had
proposed a shorter two -year period to fuller reform of the sugar regim e42, the Council decided on a
longer extension. However, a permanent reduction of 115,000 tonnes in the beet-sugar production
quota was agreed (0.8% of the 14.2 million tonnes of beet sugar produced under quota), as well as the
elimination of compensation for storage costs. No change was made during the period under review to
the "self-financing" aspect of the sugar CMO, according to which production levies partly (53%)
finance the refunds paid to export surplus Community production of refined sugar.

32.     A special report on the management of the sugar CMO published by the Court of Auditors in
2000, noted that it has remained untouched by CAP reform proposals in 1992 or under Agenda
2000.43 The report notes that the EU is the second leading producer of sugar on the world market
(behind Brazil), self-sufficiency is high, and pressures for change have arisen from chronic world
over-supply of sugar, leading to depressed prices: 29% of world production is placed for sale on
world markets. The report notes that EU sugar is not competitive on world markets, with subsidies in
the order of 75% of the intervention price required for sales to take place. It also notes the constraints
placed on subsidized exports under the WTO Agreement on Agriculture, which imply growing stocks
of sugar under unchanged internal demand conditions. The Court also underlines the high cost of the
regime to consumers, and the limited benefits from the programme, which mainly accrue to a small
number of beet farmers and sugar processors in the EU. The Court concludes that "despite a situation
of structural overproduction, the Commission has repeatedly limited itself to proposing the
continuation of the sugar regime and maintaining the levels of quotas and prices unchanged".

33.      The Commission’s responses emphasize the importance of the trade arrangements for the
ACP countries, which remain very attached to maintaining the Sugar Protocol. The Commission also
notes that exports of EU sugar take place under unsubsidized conditions as this is the requirement
placed on out-of-quota production of sugar. Furthermore, the Commission has stressed the extent to
which excess supply on world markets is linked to increases in production in other countries. The
Commission also notes that, in purchasing power terms, the price of sugar in the EU is among the
lowest in the world. Finally, the Commission notes the substantial budgetary implications of reform
of the sugar regime under the 1992 format, which are incompatible with the funding guidelines
established at the Berlin European Council in 1999.

(2)     F ISHERIES

(i)     Main characteristics

34.      The EU has a 200-mile fishing zone off the coastal areas of the North Atlantic and the North
Sea, which is fished by Community fishing vessels as well as those from countries that have
concluded bilateral agreements with the EC. In addition to fishing Community waters, the fishing
vessels of the Member States exploit the territorial waters of other countries in the Mediterranean and
off the coast of Africa under the terms of bilateral agreements, as well as fishing in international
waters, covered by regional fisheries management organizations.




        42
            European Commission Press Release IP/00/1109.
        43
              Court of Auditors, "Special Report No. 20/2000 concerning the management of the common
organisation of the market for sugar, together with the Commission’s replies" (OJ C 50/1 of 15/2/2001).
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35.      According to data for 1999 (the latest available), the Community fishing fleet consisted of
about 99,000 vessels, of a gross tonnage of about 2 million, and of a power of 78 million kilowatts.44
Greece, Italy, and Spain have the highest number of vessels among the 13 Member States with a
fishing capacity, but Spain has the highest tonnage, reflecting the relatively large size of its fishing
vessels, while Italy has the highest total kilowatts. Jobs at sea amounted to almost 244,000, and
factoring in about 1.5 jobs in the processing industry per job at sea, yielding total employment in the
sector of about 600,000 for the EU as a whole in 1999. Fishing and related activities are, however,
relatively important for certain coastal regions, such as Galicia in Spain, the Hebrides in Scotland,
Brittany in France, and the Aegean in Greece.45

36.      The EU's consumption of fishery products consistently exceeds its p         roduction, as a result of
which the EU imports 60% of its needs, with net imports increasing over time. According to the latest
available data, the EU imported 4.4 million tonnes of fish in 1999, while exporting 1.6 million tonnes;
in value terms, imports in 1999 were € 10.7 billion and exports € 1.9 billion. The EU is a net importer
of all major types of fish products consumed domestically, notably fresh or chilled salmon and cod;
frozen yellowfin tuna, cod, and hake, or frozen fillets thereof; salted cod; and preserved tuna.
37.     According to the assessments made by the International Council for the Exploration of the
Seas (ICES), which provides scientific advice to the Commission, the stocks of many species have
declined significantly in the past quarter century.

(ii)    Common Fisheries Policy (CFP)

(a)     Objectives and instruments

38.      Article 32 of the EC Treaty includes fisheries in agriculture, and the objectives stated for the
Common Agricultural Policy (CAP) under Article 33 consequently apply to fisheries. These are: to
increase production, provide a fair income for producers, stabilize markets, assure the availability of
supplies, ensure they reach consumers at reasonable prices, and ensure the principle of non-
discrimination. In addition, the objectives of a Common Fisheries Policy (CFP), first articulated on a
separate basis in 1983, "shall be to protect and conserve available and accessible living marine aquatic
resources, and to provide for rational and responsible exploitation on a sustainable basis, in
appropriate economic and social conditions for the sector, taking account of its implication for the
marine ecosystem, and in particular taking account of the needs of both producers and consumers". 46

39.      To achieve these objectives, the Community intervenes in four areas: conservation of fish
stocks; structural adjustment, including fleet management; common organization of markets; and
relations with third countries through bilateral and multilateral fisheries agreements. By the end of
2002, the EU must unde rtake a thorough reform of its CFP as a result of the expiry of and need to
renew the rules of access to the 6-12 mile limit, to the Shetland Box, and to the North Sea. The
Commission had not made any specific proposals to the Council as of 15 April 2002. The
Commission issued a Green Paper in March 2001 on the operation of the CFP in the light of its
objectives.47 Since the Green Paper was issued, a development of potential significance to the debate
within the Community is the agreement reached at the WTO Fourth Ministerial Conference on
multilateral negotiations on fishery subsidies in the context of the Doha Development Agenda.



        44
            DG Fisheries, Statistical Bulletin, p.4 [Online].   Available at:   http://europa.eu.int/comm/fisheries
[12 October 2001].
        45
           COM(2001)135, Vol. II.
        46
           Article 2 of Council Regulation 3760/92.
        47
           COM(2001)135.
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(b)     Conservation of fish stocks 48

40.      The Commission's Green Paper on the future of the CFP after 2002 stated that "from a
biological point of view, the sustainability of a high number of stocks will be threatened if the current
levels of exploitation are maintained". 49 The Commission attributes the cause to "too much fishing by
a fleet that is too large for the amount of fish that shoul d be caught and by conservation measures
which have not been effective or selective enough to protect fish stocks and marine ecosystems".50
These problems are due, according to the Commission, to the conflicting policy objectives in the
sector – supporting fishing activity while attempting to protect increasingly fragile fishery resources
and short-term measures.

41.      The main instrument of Community action on the conservation and management of fishery
resources is the setting of total allowable catches (TACs), complemented by fleet management and
reduction programmes (see below). TACs establish upper limits on the amount of fish of various
species that can be caught in a year, allocated through quotas to the Member States and to third
countries under the terms of bilateral agreements.51 These are complemented by "technical" measures
to limit fishing, including mesh sizes, closed areas, recording of catches and landings in special log
books. The implementation of the CFP by Member States is subject to control a monitoring. 52 In
                                                                                  nd
June 2000, the Council adopted a regulation on the collection and management of fisheries data to be
made available to the scientific community to enable it to provide scientific advice needed for the
implementation of the CFP.53

42.      The Commission established a recovery plan for cod and Northern hake in December 2001, as
well as control and monitoring measures to ensure the implementation of the technical rules.
Emergency measures were taken to protect cod in the Irish Sea, North Sea, and in the west of
Scotland54; and to help the recovery of the Northern hake stock from Skagerrak to the Bay of
Biscay.55 The Commission proposed long-term recovery plans, in December 2001, to help rebuild
these stocks 56, which are under consideration by the Council, and intends to present a revised package
of technical measures including those to protect immature cod and hake.

43.      In December 2001 the European Commission proposed to introduce conservation measures
for deep-water fish stocks.57 Exploitation of these species is relatively recent but has been increasing.
Recent scientific advice indicates that many of the deep-sea fish stocks are too heavily exploited and
are considered to be actually or potentially outside safe biological limits. As a first step, the
Commission proposed to set catch limitations in the form of TACs for a number of deep-water fish
stocks, which is under consideration by the Council.



        48
            Council Regulation 3760/92.
        49
            COM(2001)135, p. 6.
         50
            DG Fisheries Press Release 18/01.
         51
             Council Regulation 2848/2000 sets the TACs and quotas for 2001. See European Commission Press
Releases IP/01/1733 and IP/01/1854 for TACs and quotas agreed for 2002.
         52
             Council Regulation 2847/93, as amended. The Commission last reported to the Fisheries Council in
November 2001 for the period 1996-99, at which time it also reported serious infringements of the CFP in 2000
(European Commission MEMO/01/390). The Commission noted improvements made by Member States, but
also remaining serious weaknesses.
         53
            Council Regulation 1543/2000.
         54
            Commission Regulations 304/2000, 259/2001, and 456/2001.
         55
            Commission Regulation 1162/2001.
         56
            COM(2001)724. See European Commission Press Release IP/01/1790.
         57
            COM(2001)764. See European Commission Press Release IP/01/1779.
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44.      In December 2001, the Council adopted a revised set of TACs for 2002. The Commission
had proposed substantial reductions in TACs, on the basis of scientific advice.58 These reductions
were deemed necessary in the light of the parlous state of stocks, and in keeping with its multi-annual
strategy for fisheries conservation (e.g., cod, hake). The Council, however, did not fully endorse the
Commission’s proposals for TAC reductions, but agreed to make revisions to ensure no further
deterioration of certain stocks (e.g., cod in the Kattegat and the Northern hake stock).59

(c)     Structural adjustment

45.      The Financial Instrument for Fisheries Guidance (FIFG) is the leading form of financial
assistance to the subsector, and has a dual purpose: to assist the reduction of fishing efforts under a
Multi-annual Guidance Programme (MAGP), decided by the Council, which sets out for each
Member State the objectives for fleet restructuring and the means to achieve them; and to provide for
investment, including for fleet renewal and modernization of fishing vessels.60 In its notification to
the WTO, the Community indicates that € 3.7 billion have been budgeted to the FIFG for 2000-06, up
from € 2.7 billion during 1994-99. It also states the trade effects of the aid as follows: "The
Community has a shortfall in fishery and aquaculture products and is a major importer of these
products from non-Community countries. The structural aid has only a very small influence on this
situation."61

46.    Regarding Member State assistance, the rules on structural assistance require entries and exits
from the subsector to be consistent with the objectives set in the MAGP, to prevent further
development of excess capacity. 62 Estimates from DG Fisheries indicate that Member State assistance
was about 45% of the expenditure on FIFG over the period 1994-99.

47.      With respect to the objective of conservation of fishery resources, the over-capacity of the
fleet is an enduring difficulty, according to the Commission. Between 1992 and 1998, the number of
vessels (in EU-12) declined by 5%, tonnage by 14%, and power by 11%. However, technological
progress is making vessels more efficient. As a result, the EU fleet has almost twice the capacity
needed to catch the available fish. 63 MAGP (IV), adopted for the period 1997-01, was extended until
mid 2002, a were the conditions for public aid under FIFG.64 On the latter, changes were made to the
              s
capacity that must be withdrawn for the introduction of new capacity with public aid in the segments
where objectives have not been met (135% rather than the previous 130%), and to the possibilities to
revise objectives where modernization to improve safety leads to an increase in capacity, which is
restricted to vessels under 12-metres that are not trawlers. New provisions designed to fight illegal
fishing were included and in particular that "public aid should not be made available for the
permanent transfer of fishing vessels to certain third countries that have been identified by the
relevant regional fisheries organisations as countries that permit fishing in a manner which jeopardises
the effectiveness of international conservation measures". 65



        58
            European Commission Press Release IP/01/1733.
        59
            European Commission MEMO/01/446.
         60
            Council Regulation 1263/99.
         61
            WTO document G/SCM/N/71/EEC, p.47.
         62
             Council Regulation 2792/1999. See also "Guidelines for the examination of state aid to fisheries and
aquaculture" (OJ C 19/05 of 20/1/2001).
         63
            European Commission Press Release IP/01/1733.
         64
             Council Decision 2002/70/EC. For news on the Commission’s proposal for the next MAGP
programme, see Financial Times, 24 April 2002.
         65
            Council Regulation 179/2002.
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(d)     Common organization of markets

48.      During the period under review, the last major revision of the CMO, which was adopted in
December 1999, was implemented as from 1 January 2001.66 The CMO for fishery and aquaculture
products comprises: common marketing standards for fresh products on quality, grades, packaging
and labelling of both Community and imported fisheries products; producers' organizations (POs)
established in each Member State, which are composed of fishermen, and which implement the
supply-side instruments of the CMO; a price support system, which sets minimum prices below which
fish products cannot be sold; and rules for trade with non-Community countries.

49.      To ensure a minimum income for producers, the CMO continues to provide for "withdrawal"
prices to be set, at which POs may take fish off the market. They provide compensation to their
members and apply for Community aid. However, in order to decrease the quantities of fish taken off
the market and reduce waste, the volumes eligible for compensation have been reduced in the new
CMO, from 14% to 8% of POs production or landings, except for pelagic species, where the new
ceiling is 10% of annual landings. Furthermore, the compensation itself was also reduced. Storage
and carryover arrangements were modified, however, to increase assistance for this purpose.

50.     An allowance is paid to producers of tuna for processing under certain conditions, originally
designed to compensate them for the suspension of tariffs on frozen tuna products implemented in
1970. It is paid to POs when market prices and import prices fall below a trigger level. The reform of
the CMO has lowered the trigger level from 91% to 87% of the Communi ty producer price. The
allowance is computed in relation to the quantities of tuna sold to Community processors.

51.      Expenditure on price support within the CMO was budgeted at € 16.7 million for 2001 under
the new rules, up 19% from € 14 million in 2000, before the new rules went into effect; according to
Commission estimates, the amount budgeted for price support in 1999 (€ 20 million) amounted to less
than 0.5% of the landings of the species covered. 67 However, the amount for price support actually
spent in 2000 was € 9.5 million, down from € 11 million in 1999. The Community claims, in its
notification to the WTO on subsidies, that the CMO has no trade effects "in so far as the Common
Organization of Markets aims at regularizing prices and not at artificially raising their level".68

52.     Withdrawal prices are fixed in relation to Community-wide "guide" prices, set each year on
the basis of the Member States’ average market prices over the previous three years. For 2002, the
Council adopted the Commission proposal of raising guide prices with increases varying from 1% to
3% for most species, except for tuna destined for the processing industry, where the 2001 price level
was maintained.69

53.      The new CMO contains expanded consumer information requirements on live, fresh, and
chilled fishery products.70 The implementing Commission regulation, which applies from
1 January 2002, requires consumers to be informed about the production method, the catch area, and
the exact commercial designation of the product they buy, as well as introducing traceability of
fisheries products.71 These requirements also apply to imports from third countries.


        66
             Council Regulation 104/2000 on the common organisation of the markets (CMO) in fishery and
aquaculture products. See DG Fisheries (1999).
         67
            WTO (2000a), Vol. 2, p. 236.
         68
            WTO document G/SCM/N/71/EEC, p.48.
         69
            European Commission MEMO/01/355.
         70
            Article 4 of Council Regulation 104/2000.
         71
            Commission Regulation 2065/2001.
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54.      With respect to the common commercial policy on fishery products, the new CMO has led to
the suspension of tariffs, totally or partially, as well as the opening of new tariff quotas, on an
autonomous basis, on fishery products intended for the processing industry (Table IV.3). In certain
cases, the benefit of the tariff reduction cannot be invoked when the import price is lower than the
reference price, in which case the full tariff is applied.72 These new trade measures complement a
regime for imports of fishery products that is generally open, by virtue of low tariffs (Table AIII.1),
and the effects of preferences on originating products granted under regional trade agreements
(notably EFTA and the Cotonou Agreement) and GSP. The Commission estimates that about 70% of
Community imports of fishery products are free of duty.

Table IV.3
Old and new tariff suspensions and tariff quotas for fishery products
 Product                               Old rules                                     New rules
 Alaska Pollack, frozen fillets        An autonomous suspension opened each year.    Imports of an unlimited amount at 0% (for an
 and meat                              Agreed rate for 1999: 4%                      indefinite period)
 Cod, fresh, chilled or frozen,        An autonomous quota opened each year. Quota   Imports of an unlimited amount at 3% (for an
 excluding liver and roes              for 1999: 75,000 tons at 3%                   indefinite period)
 Cod and fish of the species           An autonomous quota opened each year. Quota   An autonomous quota opened for 3 years.
 Boreogadus Saida, salted or in        for 1999: 8,000 tons at 2.5%                  Quota for 2001-03: 10,000 tons at 0% for each
 brine, but not dried or smoked                                                      year
 Surimi, frozen                        An autonomous quota opened each year. Quota   Imports of an unlimited amount at 3.5% (for
                                       for 1999: 15,000 tons at 3.5%                 an indefinite period)
 Blue Grenadier, frozen fillets        An autonomous quota opened each year. Quota   Imports of an unlimited amount at 3.5% (for
 and meat                              for 1999: 20,000 tons at 3.5%                 an indefinite period)
 Prawns, in shell, fresh, chilled or   An autonomous quota opened each year. Quota   Imports of an unlimited amount at 0% (for an
 frozen                                for 1999: 12,000 tons at 0%                   indefinite period)
 Shrimps and prawns, cooked and        An autonomous quota opened each year. Quota   An autonomous quota opened for 3 years.
 peeled                                for 1999: 4,000 tons at 6%                    Quota for 2001-03: 5,000 tons at 6% for each
                                                                                     year
 Tuna loins                            An autonomous quota opened each year. Quota   An autonomous quota opened for 3 years.
                                       for 1999: 1,000 tons at 6%                    Quota for 2001-03: 4,000 tons at 6% for each
                                                                                     year
 Herring, fresh, chilled or frozen     An autonomous quota opened each year. Quota   An autonomous quota opened for 3 years.
                                       for 1999: 20,000 tons at 0%                   Quota for 2001-03: 20,000 tons at 0% between
                                                                                     1 November and 31 December of each year
 Herring, spiced/vinegar cured, in     An autonomous quota opened each year. Quota   An autonomous quota opened for 3 years.
 brine, preserved in barrels of at     for 1999: 4,000 tons at 6%                    Quota for 2001-03: 5,000 tons at 6% for each
 least 70 kg. net drained weight                                                     year

Source:     DG Fisheries (1999), Information Notes: "Reform of the Common Organisation of the Markets in fishery and
            aquaculture products, Annexes III and IV [Online].       Available at:   http://europa.eu.int/comm/fisheries
            [12 October 2001].

(e)         External agreements 73

55.     An important aspect of the Community fisheries policy, in the light of fragile fish stocks
within its territorial waters and fleet over-capacity, is the development of fishing opportunities
elsewhere, either through bilateral agreements or, on the high seas, through regional fishery

            72
              The reference prices, below which tariff reductions do not apply, may be fixed for products that are
the subject of:      (i) tariff reduction or suspension arrangements; (ii) autonomous tariff suspensions for an
indefinite period of time adopted within the framework of the reform of the CMO; and (iii) other trade
arrangements which provide for compliance with a reference price and which are in line with the Community
international undertakings (Council Regulation 2574/2001). For 2002, the species concerned by reference prices
are herring, cod of the species Gadus morhua, deep water prawns of the species Pandalus borealis, and Alaska
Pollack.
          73
             IFREMER (1999).
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management organizations. The Community’s "Southern" agreements concern mainly African and
Indian Ocean countries, and provide for access by Community fishing vessels in exchange for
Community financial assistance and fees from vessel operators. The tuna agreements provide for no
direct competition between Community and local fishing fleets.         The "Northern" agreements
exchange fishing opportunities/rights between Community fleets and the fleets of third countries, and
financial compensation is provided by the Community to Greenland and the Baltic countries. For
2002, the Community budget earmarked for fisheries agreements is almost € 189 million. The
Community has implemented a series of trade measures related to international resource management
and conservation agreements such as the International Commission for the Conservation of the
Atlantic Tunas (ICCAT) or the Commission for the Conservation of Antarctic Marine Living
Resources CCAMLR (Chapter III(1)(vi)).

(g)     Sanitary and health regulations

56. The placement of fishery products on the Community market, whether of domestic or imported
origin, is subject to sanitary regulations to protect the health of the consumer; these are applied on a
national treatment basis.74 The test applied to imports is whether the hygiene conditions under which
production is carried out in the country of origin can be considered to be equivalent to that required
from Community producers; a competent authority responsible for the public health aspects of
fishery products must also exist. A Commission Decision sets the specific conditions for imports into
the Community based on a report of a mission of experts.

57.      A Commission Decision sets out the list of 102 countries from which imports of fishery
products into the Community are permitted; imports of fishery products from countries not on the list
are not permitted.75 Part I of the list identifies the 58 origins that have been the subject of a
Commission Decision setting out the specific conditions for imports into the Community. These
countries are designated as fully harmonized with the Community practices and legislation, and
originating imports are authorized subject only to spot checks and verifications. Part II of the list
identifies the other 44 "pre-harmonized" countries for which a Commission Decision has not been
taken, but from which guarantees have been received concerning their inspection system and their
legal sanitary requirements.76 Imports are authorized on the basis of documentary evidence, receiving
provisional approval until Community inspection is effected. Part II of the list was valid until
December 2000, but has been extended to December 2003, due to delays and the possibility of revised
legislation as a result of the White Paper on Food Safety.77

(3)     F INANCIAL SERVICES

(i)     Main characteristics

58.       Financial services cover three main subsectors: banking, encompassing all types of credit
institutions; insurance, covering life and non-life insurance markets; and securities, covering the
listing and public offer of securities, as well as the provision of certain investment services. As
regards the allocation of savings by EU households, the share of household financial assets held
directly in securities ranged from 13% in Austria to 38% in Italy, with the remainder held in


        74
               Council Regulation 91/493/EC concerns fishery products and Council Regulation 91/492/EC
concerns live bivalve molluscs. See DG Fisheries online information for other food hygiene legislation of
application to fishery products.
          75
             Commission Decision 2001/935/EC.
          76
             Council Decision 95/408/EC, as amended.
          77
             Council Decision 2001/4/EC.
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"intermediated" investments (from banks, insurance companies, or mutual funds).78              Insurance
companies and pension funds were the leading intermediaries in the Netherlands, Sweden, and the
United Kingdom, while banks were in the leading position elsewhere. Mutual funds had a significant
presence only in Italy (over one third of intermediated investments) and Sweden (one quarter).

59.       According to the latest available data, there were 8,330 credit institutions in the EU in 1999,
down by 16% from 1994, indicating a marked consolidation trend.79 Just over 4% of credit
institutions were branches of non-EEA enterprises, with the most significant presence in the United
Kingdom (about one quarter), which also has the most concentrated banking sector (0.8 institutions
per 1 million inhabitants). Luxembourg has the highest relative employment level in the sector (12%
of the labour force), and the highest ratio of banks’ balance sheet to GDP (3,299%). Net interest
income in the EU as a whole (€ 241 billion) is about 2.3 times higher than net commission income (
€ 105 billion), although the ratio has been declining since 1994 as enterprises increasingly turn to
capital markets to raise funds.

60.      In 1999, there were 3,853 insurance companies in the EU, of which 27% were providers of
life insurance and 56% were non-life insurance companies.80 These enterprises wrote € 756 billion of
premiums in 1999, making the EU insurance market the third largest in the world, behind the United
States and Japan. One third of all premiums were written by UK insurance enterprises (e.g., Lloyd’s).
Of total life and non-life insurance premiums, 44% were written by life insurance companies ( € 329
billion); a portion of the premiums written by composite insurance enterprises ( € 170 billion) is also
for life insurance. Over time, the insurance industry has been consolidating, while premiums written
have risen, especially in the life insurance segment. On a per capita basis, average spending on life
insurance was highest in the United Kingdom and in Ireland (spending in Luxembourg is inflated by
the premiums written for non-residents), and lowest in Portugal and Spain; average spending was
more homogeneous in the non-life area.

61.     In 2000, the stock exchanges of five Member States were among the world's ten largest in
terms of the market capitalization of domestic companies London, Euronext Paris, Deutsche Borse,
Italy and Euronext Amsterdam – although in each case, well below that of the New York Stock
Exchange, the world leader.81 European equity markets experienced a sharp slowdown in the value of
market capitalization during 2000 as a result of the downward revisions of the value technology,
media, and telecoms companies, prospects of slowing growth, and monetary policy geared to
containing inflationary pressures. In the course of 2001, market sentiment improved although a high
degree of uncertainty over the course of future economic developments remains apparent.

62.      A significant feature of the period under review is the emergence of new pan-European
structures in financial markets, under the impetus of the euro. In September 2000, Euronext brought
together the Paris, Amsterdam, and Brussels stock exchanges to offer investors an integrated trading
platform for equities, bonds, derivatives, and commodities. In October 2001, Euronext acquired the
London International Financial Futures and Options Exchange (LIFOE), to create the second leading
derivatives market in the EU, behind Eurex (resulting from the merger of the German and Swiss




        78
              Eurostat News Release 128/2001.
        79
              Eurostat, "Statistics on Credit Institutions", Theme 4 – 25/2001.
           80
               The remainder were composite (6.1%) and specialist (10%) companies. Eurostat News Release
11/2002; Eurostat, "Insurance Services Statistics", Theme 4 – 28/2001.
           81
               Comparisons on the value of share trading cannot be made directly as a result of the adoption of
different systems of compiling turnover statistics.
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derivatives markets).82 Thus, although many stock exchanges remain focussed on national markets, a
trend to financial market integration is apparent.

(ii)    Policy developments

(a)     Overview

63.      Since the last Trade Policy Review of the EU in mid 2000, the legislative efforts to complete
the internal market in financial services by 2005 have intensified in the framework of the "Financial
Services Action Plan (FSAP)" adopted in 1999 under the impetus of the euro.83 The objective of
completion is a central plank of the Community’s strategy for economic growth. According to the
Commission, "the bigger and more integrated financial markets we build, the more effectively risk
will be pooled, the lower the costs and the higher the economic growth". 84

64.     The regulatory framework for financial services covers the right of establishment and the
freedom to provide services throughout the internal market; the sector is also subject to Community
rules on competition and state aid (Chapter III(3)(ii)). The core principle is the "European passport"
or "single passport", according to which the "host" Member State recognizes the authorization granted
to the financial service provider by the "home" Member State, thus obviating the need for host
country authorization. However, the host country may impose requirements on a financial service
provider to achieve imperative objectives (the principle of the "general good").85 Home-country
control applies to financial supervision of the head office and branches, although cooperation with
host Member States is extensive. A single procedure also applies to the reorganization and
winding-up of financial institutions.

65.      Another core principle is harmonization of essential requirements applying to financial
service providers to ensure that the consumer is protected and the integrity of the financial system is
safeguarded. Harmonization applies to prudential obligations, to ensure that EU financial service
providers meet minimum standards throughout the EU, and to accounting systems, to ensure sound,
transparent, and comparable business management systems.

66.     EU policies are directly relevant for third-country financial service providers due to the
commitments made by the EU in the Fifth Protocol to the GATS, which entered into force on
1 March 1999.86 These commitments extend the principle of the single passport to third-country
providers subject to limitations placed on national treatment.            Third-country financial service
providers enjoy the new access opportunities created by the progress of FSAP , but must also assume
the new obligations on financial service providers established in the EU.




        82
              Euronext, "Next Facts", No. 5, November 2001 [Online]. Available at: http://www.euronext.com
[30 November 2001].
          83
             COM(1999)232.
          84
               European Commission SPEECH/01/17 [Online].            Available at:   http://europa/eu.int/rapid
[13 December 2001].
          85
              WTO (2000), Box IV.6. See, for example, Commission interpretation of the freedom to provide
services and general good in insurance (COM(2000)43).
          86
             WTO document GATS/SC/31/Suppl.4/Rev.1 as implemented by Council Decision 1999/61/EC. The
content of the EU's commitments is covered in WTO (2000), Annex IV.2, and on the Commission’s online
information. Available at: http://gats-info.eu.int [1 October 2001].
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(b)        Financial Services Action Plan (FSAP)

67.      Efforts to achieve an internal market for financial services date from the Single Market
Programme at the end of the 1980s, but were renewed in the FSAP adopted in 1999. It has four
objectives: ensuring a single market for wholesale financial services; open and secure retail markets;
state-of-the-art prudential rules and supervision; and any other conditions needed for an optimal
financial market. The FSAP consists of legislative and non-legislative measures to achieve these
objectives, with a schedule for adoption and implementation. Progress is monitored periodically by
DG Internal Market and reported upon by the Financial Services Policy Group (FSPG), composed of
representatives of Finance Ministers and the ECB.

68.      Between the beginning of 2000 and the end of March 2002, the Council and the European
Parliament adopted 15 legislative measures under the FSAP concerning banking, insurance and
securities, as well as legislation of cross-sectoral application (Table IV.4). The legislation adopted
includes completing the regulatory frameworks for banking and insurance with provisions on
reorganization and bankruptcy of undertakings, money laundering, and reducing the cost of cross-
border payments in euro. Horizontal legislative actions also of relevance to cross-border restructuring
in financial services include the European Company Statute adopted in October 2001 for
implementation by 2004 (Chapter III(3)(i)).

Table IV.4
Legislative measures of the Financial Services Action Plan adopted between 2000 and March 2002
 Measure                                                                                  EU document           Implementation
 Directive on the taking up and pursuit of credit institutions                     Directive 2000/12/EC    5 May 2004
 Fourth Motor Insurance Directive                                                  Directive 2000/26/EC    20 July 2002
 Amendment to the Directive on the taking up and pursuit of credit institutions                            4 April 2001
 as regards banking supervision                                                    Directive 2000/28/EC
 Directive on the taking up, pursuit of and prudential supervision of electronic                           27 April 2002
 money institutions                                                                Directive 2000/46/EC
 Amendment of Directives 85/611/EEC, 92/49/EEC, 92/96/EEC and                                              17 November 2002
 93/22/EEC as regards exchange of information with third countries                 Directive 2000/64/EC
 Directive on the reorganisation and winding up of credit institutions             Directive 2001/24/EC    5 May 2004
 Regulation on cross-border payments in euro                                       Regulation 2560/2001    1 July 2002
 Directive on the reorganisation and winding up of insurance undertakings          Directive 2001/17/EC    20 April 2003
 Directive on the admission of securities to official stock exchange listing and                           26 July 2001
 on information to be published on those securities                                Directive 2001/34/EC
 Amendment of Directive 79/267/EEC as regards solvency margin                                              1 January 2004
 requirements for life insurance undertakings                                      Directive 2002/12/EC
 Amendment of Directive 73/239/EEC as regards solvency margin                                              30 September 2003
 requirements for non-life insurance undertakings                                  Directive 2002/13/EC
 Amendment of Directive 85/611/EC on UCITS                                         Directive 2001/108/EC   13 February 2003
 Amendment of Directive 85/611/EC on UCITS to regulate management                                          13 February 2003
 companies and simplified prospectuses                                             Directive 2001/107/EC
 Amendment to the anti-Money Laundering Directive 91/308/EC                        Directive 2001/97/EC    15 June 2003
 Amendments to the 4 th and 7th Company Law Directives to allow fair value                                 1 January 2004
 accounting                                                                        Directive 2001/65/EC

Source: COM(2001)712 and Eur-Lex database.

69.       A mid-term review of the FSAP was undertaken in early 2002 to, according to the
Commissioner in charge, "re-inject the necessary political energy and will"87, as a large number of
legislative proposals are under consideration by the Council and European Parliament for adoption in
           87
                European Commission SPEECH/01/492.
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2002 and 2003 (Table IV.5). The Barcelona European Council confirmed the political commitment to
the deadlines of 2003 for an integrated securities market and 2005 for completion of the FSAP. The
European Council also agreed that priority attention should be given in 2002, by the Council and the
European Parliament, to adoption of the proposed Directives on collateral, market abuse, insurance
intermediaries, the distance marketing of financial services, financial conglomerates, prospectuses,
occupational pension funds, and the IAS Regulation. The Commission has issued a revised proposal
for a Directive on the taxation of savings income of individuals88, as part of a package of three
measures on taxation to be adopted by the end of 2002 (Chapter III(3)(i)), and intends to issue a
revised proposal for a Takeover Bids Directive.89

Table IV.5
Legislative programme of the Financial Services Action Plan, 2002-03
 Measure                                                                                                        EU document         Adoption
                                                                                                                 reference          schedule
 Insurance Intermediaries Directive                                                                             COM(2000)511          2002
 Directive on the Prudential Supervision of Supplementary Pension Funds                                         COM(2000)507          2002
 Regulation on International Accounting Standards (IAS)                                                         COM(2001)80           2002
 Prospectus Directive                                                                                           COM(2001)280          2002
 Directive on Insider Dealing and Market Manipulation                                                           COM(2001)281          2002
 Regular Reporting                                                                                                   …                2003
 Amendment to the 10 th Company Law Directive                                                                        …                2002
 Directive on financial collateral arrangements                                                                 COM(2001)168          2002
 14th Company Law Directive                                                                                          …                2003
 Upgrade of Investment Services Directive                                                                            …                2003
 Modernisation of the accounting provisions of the 4th and 7th Company Law Directives                                …                2003
 Directive on the Distance Marketing of Financial Services                                                      COM(1999)385          2002
 Takeover Bids Directive                                                                                             …                2003
 Directive on taxation of interest income from cross-border investment of savings                                    …                2002
 Directive on Prudential Rules for Financial Conglomerates                                                      COM(2001)213          2002

…          Not available.

Source:    COM(2001)712, "Progress on the Action Plan for                               Financial   Services"     [Online].      Available     at:
           http://europa.eu.int/comm/internal_market [1 February 2002].

(c)        Banking

70.      Banks benefit from the single passport since 1993, subject to harmonized conditions on
capital adequacy requirements, deposit-guarantee schemes, and regulatory supervision based on the
home-country principle. At the time of its last Review in mid 2000, the EU had simplified the
regulatory framework by consolidating the two core Banking Directives and subsequent legislative
measures as amended into a banking code. This code was complemented during the period under
review by the adoption of a measure on the reorganization and winding-up of credit institutions with




           88
           COM(2001)400. See European Commission Press Release IP/01/1026 and MEMO/01/266.
           89
             Following the rejection of the proposed Takeover Bids Directive by the European Parliament in a
vote on 4 July 2001, the Commission established a High Level Group of Company Law Experts to examine
issues identified by the European Parliament for further harmonization; a report was made in early 2002
(European Commission Press Release IP/02/24).
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branches in several Member States.90 In addition, the legislative framework for banking was extended
to electronic money institutions.91

71.      A significant development during the period under review is the adoption of the regulation on
cross-border payments in euros to achieve a single payments area. 92 The regulation provides for the
principle of non-discrimination to apply to bank charges for national and cross-border payments in
euros, to be implemented by 1 July 2002 for card payments and cash dispensers, and by 1 July 2003
for cheques and credit transfers. Commission studies have indicated persistently high and variable
levels of charges on cross-border payments, with little change since 1993, despite repeated
exhortations to banks to eliminate the practice.93 According to the regulation, cross-border movement
should not distinguish a payment from a national one, where uniform charges apply irrespective of
distance as a result of mutualization. 94 The Commission does not, however, anticipate a rise in bank
charges as a result of implementation.95

72.      For the future, a major objective of the FSAP in the area of banking legislation is the revision
of the capital adequacy requirements for banks, which also apply to investment firms.96 The process
of developing a new EU framework for capital adequacy is in parallel with the elaboration of a new
Basle Accord on Capital Adequacy by the Basle Committee, on which certain Member States are
represented, to replace the 1988 Accord and its amendments.97 Capital charges for credit risk (bank
lending to customers) are the main focus of the changes being considered by the Commission,
specifically: adaptation of capital charges to the nature of risks assumed, incentives for prudent risk
management, elimination of waivers, and a wider scope of consolidation.98 The new requirements are
anticipated to be in place by 2007, following the Basle Committee’s decision to extend its timetable
for consultation and implementation from 2004 to 2005.

(d)     Insurance

73.      Insurance undertakings have benefited from the single passport since 1994, subject to
harmonized solvency margin requirements and regulatory supervision based on the home-country
principle. At the time of the last Review of the EU in mid 2000, the Commission had submitted a
proposal to the Council and European Parliament for the simplification of the regulatory framework
for life insurance by consolidating the existing directives and their amendments in a single text.99 This
framework is expected to be adopted in the course of 2002, given the adoption in March 2002 of the
two Directives on revised solvency margin requirements for life and non-life undertakings, to be
adjusted in relation to the risks assumed under policies (e.g., higher for maritime, aviation, and
general liability business). The existing framework was also completed during the period under
review by the adoption of the Directive on the reorganisation and winding up of insurance
undertakings with agencies in several Member States, to ensure that policyholders in different
Member States are subject to a single procedure and have the same protection as home-country

        90
             Directive 2001/24/EC.
        91
             Directive 2000/46/EC.
          92
             Regulation 2560/2001.
          93
             European Commission MEMO/01/294.
          94
             European Commission Press Release IP/01/1084.
          95
             European Commission SPEECH/01/492.
          96
              Capital adequacy requirements are charges to be assumed by credit institutions and investment firms
to cover the risks associated with the loans and investments made with funds available, including deposits.
          97
             DG Internal Market (1999).
          98
              Directives 92/30/EEC and 93/6/EEC provide for waivers from capital adequacy requirements for
certain group structures.
          99
             COM(2000)398.
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policyholders.100 Additional measures adopted during the period under review are: the Fourth Motor
Insurance Directive to provide improved information, easier procedures and quicker settlement of
claims to motorists visiting from other EU Member States.101

74.     The Commission has issued a proposal to extend the freedom to establish and to provide
services in the single market to intermediaries (insurance agents and brokers).102 Once adopted, this
measure could have a significant impact on the state of competition on the retail side of the insurance
market, since consumers will have easier access to a greater choice of insurance policy options.

(e)     Securities

75.      The Stockholm European Council decided in March 2001 on the deadline of 2003 to
complete the single market in securities. Following the recommendations of the Committee of Wise
Men103, a new "Lamfalussy" approach to securities market regulation has been established: "core
level 1" legislation is to establish essential principles, while "core level 2" implementing powers are to
be conferred by the Council and the European Parliament upon the Commission104, whose decisions
are to be subject to approval by a newly established European Securities Committee (ESC), advised
by a Committee of European Securities Regulators (CESR).105 The Committee of Wise Men also
recommended extensive consultations in the pre-proposal stage of the legislative proposals made by
the Commission. The change in the nature of legislation is intended to accelerate the process of
adopting legislation, and ensure responsiveness to technical changes and market developments
without needing to restart the legislative process. The CESR is to advise the Commission on the
nature of technical implementing measures to be adopted, and strengthen coordination of national
efforts on implementation.

76.      Proposed changes to existing EU regulation concern several aspects of securities transactions.
Since 1996, investment firms have benefited from the single passport under the 1993 Investment
Services Directive (ISD), subject to the application of home-country rules in the interest of protecting
investors, harmonized (with banks) capital adequacy requirements, and supervision under the home
country principle. Stock exchanges, which provide the services of listing and trading, are "regulated
markets" under the ISD, which also contains provisions on remote access to clearing and settlement.

77.     The Commission has identified gaps in this regime, and intends to submit a proposal to
upgrade the ISD in the course of 2002, in line with the Lamfalussy approach, and following the
extensive consultations that have taken place. Key changes would include making the single passport
work more effectively by clarifying the distinction between the "professional investor" (aware of the
risks) and other investors (more in need of protection) for the purpose of imposing
conduct-of-business rules on investment firms from another Member State under Article 11 of the
ISD.106 Other changes to investor protection clauses would be designed to take into account new

        100
              European Commission Press Release IP/01/216.
        101
              Directive 2000/26/EC.
          102
              COM(2000)511. See European Commission Press Release IP/00/1048.
          103
               "Final Report of the Committee of Wise Men on the Regulation of European Securities Markets"
[Online]. Available at: http://europa.eu.int/comm/internal_market [28 January 2002].
          104
               See Commission declaration of 4 February 2002 on the implications of the enhanced executive role
of the Commission on such legislation with respect to the position of the Parliament in the legislative process.
          105
                Commission Decisions 2001/528/EC and 2001/527/EC, respectively. The ESC is an advisory
Committee composed of Member State representatives and chaired by the Commission; it will operate
according to the regulatory procedure under legislation proposed for adoption. The CESR is an advisory
Committee and will remain as such. See WTO (2000a), Vol. I, Box II.2, p. 21.
          106
              COM(2000)722. See European Commission Press Release IP/00/1314.
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possibilities, such as online trading, or to deal with potential inconsistencies with the electronic
provision of investment services under the e-Commerce Directive (section (5)), which entered into
force on 17 January 2002. A Communication would be issued on the future of European clearing and
settlement systems.

78.      One proposal, already submitted by the Commission to the Council and European Parliament,
concerns insider dealing and market manipulation (market abuse).107 Although a Directive on insider
dealing has been in place since 1989, it does not deal with market manipulation, and its scope is
confined to regulated markets under the ISD. The proposal, which is in line with the Lamfalussy
approach, is intended to close these gaps, and also requires a single regulatory and supervisory
authority to be designated in each Member State to deal with market abuse, to ensure a uniform
approach. The proposal does not mandate the harmonization of penalties for market abuse, because
this was considered to be the competence of Member States, but does encourage them to set penalties
to promote compliance with the requirements of the proposed ISD.

79.      Another major proposal, which is also in line with the Lamfalussy approach, is to establish a
single prospectus acceptable across Europe, replacing the 15 existing regimes and 15 different
standards.108 The proposal would require compulsory automatic recognition to prospectuses drafted in
accordance with the Directive, with a single set of documents providing a single passport for issuers
in the EU market. In addition, the introduction of enhanced disclosure standards, in line with
international standards, is intended to facilitate admission in third-country markets. In 2001, the
regulatory framework for the admission of securities to official stock exchange listings, and on the
information to be published on them, was simplified by the consolidation of existing directives and
their amendments in a single text.109

80.      Mutual funds (known as undertakings for collective investment in transferable securities
(UCITS)) are also subject to the single passport regime. Since 1986, funds licensed by the home
country have been able to offer units for sale throughout the EU, subject to harmonized requirements
on regular reporting and investment policies. The Commission has proposed extending the licensing
regime to collective investment vehicles other than those investing just in transferable stocks and
bonds (e.g., deposits, money market instruments, derivatives), and to apply the single passport regime
to the enterprises providing fund management services.110

81.     The Commission has also issued a proposal for a Community-wide framework for collateral,
which was valued at some US$900 billion for government securities alone in 2000, about half the size
of the United States’ market.111 The proposal is intended to resolve certain problems affecting the
cross-border use of collateral in wholesale financial markets in order to encourage their development.

82.     The Commission is planning to issue a proposal, also in line with the Lamfalussy approach, to
revise the regular disclosure requirements for issuers whose securities are admitted to a regulated
market.112 To this end, a pre-consultation exercise was carried out in 2001.


         107
              COM(2001)281. See European Commission Press Release IP/01/758 and MEMO/01/203. Market
abuse arises when investors have been unreasonably disadvantaged by others who: (a) used information that is
not publicly available (insider dealing);            and/or (b) distorted the price-setting mechanism of financial
instruments or disseminated false or misleading information (market manipulation).
         108
             COM(2001)280. See European Commission Press Release IP/01/759 and MEMO/01/204.
         109
             Directive 2001/34/EC. See European Commission Press Release IP/00/822.
         110
             COM(2000)329 and COM(2000)331). See European Commission Press Release IP/00/567.
         111
             COM(2001)168. See European Commission Press Release IP/01/464 and MEMO/01/108.
         112
             To amend Directive 82/121/EC.
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(f)           Other

83.      Directive 2001/97/EC, amending the 1991 Directive on money laundering, extends the scope
of application to proceeds from all crime, not just drug offences, in accordance with the 1996 revision
of the 40 Recommendations of the Financial Action Task Force (FATF), the leading international
body devoted to the fight against money laundering. 113 The amendment extends coverage to a series
of non-financial activities also deemed vulnerable to misuse by money launderers, including lawyers,
art dealers, real estate agents, and casinos.

(4)           TELECOMMUNICATIONS

(i)           Main characteristics 114

84.     The EU telecommunications services market was valued at € 218 billion in 2001, roughly on
a par with the U.S. market (Table IV.6). Revenue in the sector expanded rapidly in 2001, up 14%
over 2000, due largely to mobile telephony. The EU’s mobile subscriber base was 263 million in
August 2001, up 36% on the pr evious year's level, giving a 70% mobile penetration rate in the EU.115

Table IV.6
Telecommunication markets in the EU, 2001
(€ billion)
                                                                   MEMBERSa

                      EU     B    DK     D     EL     E      F     IR     I      L     NL     A     P     FI    S     UK


    Total             218   5.6   3.6   46.6   5.0   22.8   34.3   2.7   32.3   0.3    10.8   5.1   4.5   2.8   5.3   36.0
    Voice             110   2.8   1.9   26.5   2.7   10.5   17.9   1.6   14.8   0.15   5.2    2.3   2.2   1.1   2.8   17.5
    Mobile            82    2.1   1.3   14.0   2.1   10.9   10.9   1.0   14.7   0.1    4.6    2.3   2.0   1.3   2.0   12.6
    Network           26    0.8   0.4   6.1    0.2   1.4    5.5    0.2   2.8    0.05   1.0    0.4   0.3   0.4   0.5   5.9

a             B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;
              NL: The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.

Source:       COM(2001)706.

85.     The "new economy" has also continued to advance in the EU since its last Review in
mid 2000. Use of information and communications technology (ICT) is well advanced among large
European enterprises, to achieve efficiencies internally and in relations with suppliers and customers;
consequently, business-to-business (B2B) e-commerce has developed strongly. Use of ICT is less
advanced, however, among small and medium-sized enterprises (SMEs). In addition, just over 36%
of households have home Internet access (Table IV.7), compared with over one-half in the United
States. A "digital divide" has emerged between Member States in the north and south, of which the
former have much higher rates of Internet penetration. 116




              113
              See European Commission Press Release IP/01/1608.
              114
              The main source of data is COM(2001)706.
          115
               The penetration rate is measured as the ratio of subscribers to population. This is distinct from the
proportion of the population that are mobile users, due to multiple handsets.
          116
               Other "digital divides" are also of concern to the Commission, including generational (use among
young people is far more advanced than in middle-aged or senior segments of the population), and regional
(well-serviced urban areas compared with remote rural areas).
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Table IV.7
Internet penetration rates, 2001
(% of households)
                                                                                  a
                                                                      MEMBERS

                    EU       B     DK      D     EL      E      F      IR     I        L     NL      A      P     FI     S      UK


       Internet     36.1   34.7    58.9   37.9   11.7   23.4   26.2   46.2   32.9     43.6   58.5   46.2   23.4   48.1   64.3   46.5

a             B: Belgium; DK: Denmark; D: Germany; EL: Greece; E: Spain; F: France; IR: Ireland; I: Italy; L: Luxembourg;
              NL: The Netherlands; A: Austria; P: Portugal; FI: Finland; S: Sweden; UK: United Kingdom.

Source:       Eurobarometer Flash 103, June 2001.

86.     Although the PC and the standard telephone line remain the primary means of Internet access,
faster and always-on (broadband) connections are available through ADSL (asymmetric digital
subscriber line) connections. However, these wire-based Internet access technologies are unlikely to
offer the prospect of universal Internet access, which the Commission anticipates will be secured by
wireless access technology, where the EU claims a leadership position.117 In 2001, operators began
commercializing wireless services on the basis of new handsets (GPRS technology), which provide
access to the Internet. The launch of third-generation (3G) wireless services, which combines
wireless mobile technology with high data transmission capacities, is anticipated for 2002. However,
concerns on the launch of 3G have emerged because of the heavy front-end expenses resulting from
fees paid for licences (€ 130 billion), the costs of installing the necessary infrastructure and marketing
new services, under deteriorating capital market conditions for telecoms operators.

(ii)          Policy developments

(a)           Overview118

87.      Liberalization and harmonization of the telecommunications sector, together with initiatives
to foster e-commerce (section (5)), form the core of the policy programme to bring the benefits of an
"information society" to consumers and businesses, a central objective of the EU’s strategy for
economic growth (Chapter I(3)). Prior to the start of liberalization, state-owned telecom operators
(incumbents) had monopoly positions due to exclusive privileges to provide services and own and
operate infrastructure. In this context, entry of new suppliers of telecoms services was anticipated
when (a) the incumbents’ exclusive privileges to provide services were abolished, and/or (b) new
entrants were assured of access to the network infrastructure controlled by the incumbents.

88.      Starting in 1990, the Commission used its powers under competition rules to remove the
incumbents' privileges over non-voice telephony services, followed by voice telephony services,
infrastructure services, radio-based communications services and networks, satellite communications,
and cable networks.119 As of 1 January 1998, all telecoms infrastructure and service segments were


              117
               COM(2001)141.
              118
                  The main source is Commission Staff Working Document, "Europe’s Liberalised
Telecommunications Market – A Guide to the Rules of the Game", October 2001 [Online]. Available at:
http://europa.eu.int/ISPO/infosoc/telecompolicy/en/userguide-en.pdf [15 September 2001].
           119
                Liberalization directives are issued by the Commission under Article 86 of the EC Treaty, which
concerns the rules on competition applying to public undertakings and undertakings to which special or
exclusive rights have been granted. The Commission first tackled the rights of incumbents over the importation,
sale, and commercialization of telecommunications equipment (Commission Directive 88/301/EC), followed by
non-voice telephony services (Commission Directive 90/388/EC), voice telephony and infrastructure services
(Commission Directive 96/19/EC), radio-based communications services and networks (Commission
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open to competition (Greece met the deadline on 31 December 2000. As a result of the EU’s
commitments under the Fourth Protocol to the GATS, the framework regulating EU nationals is
extended to all foreign operators, with minor limitations on market access and national treatment.120

89.      A harmonized framework for national legislation is the second dimension of policy in the
sector. Conditions of access are set down in a common European regulatory framework addressing
licensing and access to the network based on the concept of open network provision (ONP). During
the period under review, a regulation was adopted on local loop unbundling (LLU) to foster
infrastructure-based competition on the local access network. 121 In February 2002, the Council
adopted the new regulatory framework for electronic communications, consisting of a Framework
Directive on electronic communications networks and services 122 , and directives on access and
interconnection123, authorization or licensing 124, universal service obligations 125, as well as a decision
on a regulatory framework for radio spectrum policy in the EU126 ; adoption of a proposed Directive
on the protection of privacy is under consideration.127 Transposition of adopted legislation is to take
place by May 2003, with implementing powers conferred on the Commission, to be assisted by a new
Communications Committee (COCOM), and advised by the High Level Communications Group
(HLCG).128 The new legislative framework is to be complemented by a Commission Directive
consolidating the rules of competition for the sector under previous liberalization initiatives.129

90.      In addition to sector-specific regulation, telecoms, like other sectors, is subject to the
application of Community-level competition rules in the event of actions having a European
dimension130, or the application of national competition law. This dual regime, consisting of ex-ante
sector-specific regulation and ex-post application of competition rules, is expected to evolve towards
greater reliance on competition rules as markets become more competitive. The new regulatory
framework is a step in this direction by more fully integrating competition policy concepts into sector-
specific regulation.




Directive 96/2/EC), satellite communications (Commission Directive 94/46/EC), and cable networks
(Commission Directives 95/51/EC and 1999/64/EC).
          120
                GATS/SC/31/Suppl.3 adopted by Council Decision 97/838/EC.                 The content of the EU's
commitments is covered in WTO (1997), p. 112 and in the Commission’s online information. Available at:
web-site http://gats-info.eu.int [1 October 2001].
          121
              Regulation 2887/2000.
          122
              Directive 2002/21/EC.
          123
              Directive 2002/19/EC.
          124
              Directive 2002/20/EC.
          125
              Directive 2002/22/EC.
          126
              Decision 676/2002/EC of the European Parliament and the Council.
          127
              COM(2000)385.
          128
              The COCOM is composed of Member State representatives, chaired by the Commission, operating
according to the advisory or regulatory procedure depending on the provision (see Box II.2, WTO (2000),
Vol. I, p. 21). The HLCG is an advisory Committee composed of national regulatory authorities (NRAs) and
chaired by the Commission.
          129
              "Notice by the Commission concerning a draft directive on competition in the markets for electronic
communications services" (OJ C 96, 27/3/2000) consolidates all liberalization directives in a single Competition
Directive, with deletion of obsolete provisions (European Commission Press Release IP/00/76).
          130
               "Notice on the application of competition rules to access arrangements in the telecoms sector"
(OJ C 265/2, 22/8/98) and "Guidelines on the application of EEC competition rules in the telecoms sector"
(OJ C 233/2, 6/9/91).
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(b)     Local loop unbundling (LLU)

91.      The LLU Regulation, which applied as from 30 December 2000, required incumbents to
provide competitors with physical access to the local loop under conditions designed in accordance
with the dominant position of the incumbent and resulting incentive to limit competition. 131 Such
access was to be provided by means of a Reference Unbundled Offer (RUO), addressing the three
principal means of LLU:

−       full unbundling of the local loop: the incumbent rents the copper pair to a third party for its
        exclusive use to provide a full range of telecoms services to the customer;
−       shared use of the copper line: the incumbent continues to provide telephone service, while the
        third party delivers high-speed data services over the same local loop using its own high-
        speed ADSL modems; and
−       high speed bit stream access: the incumbent installs the ADSL connection and makes it
        available to third party high-speed service providers.

92.      Although collocation and facility sharing in the local exchanges was provided for under the
Interconnection Directive, and LLU was introduced on this basis in Denmark, Germany, the
Netherlands, Austria, Finland, and Sweden, other countries lagged behind. As a result, in most
Member States, the incumbent has retained a dominant share of the local calls and Internet calls
segments, while its share in the national and international calls segments has been reduced by the
activity of resellers and alternative operators (Table AIV.2). Another motivation for the LLU
Regulation was to ensure a relatively high degree of uniformity in LLU across Member States.

93.      Among the anticipated results is a reduction in the prices of local calls, which appear to be
inversely related to Internet penetration rates.132 In addition, new entrants are expected to compete
with the incumbents to offer higher bandwidth on the local loop, by upgrading the "twisted pair"
copper cable infrastructure to ADSL. This would be of particular benefit to SMEs and residential
customers. It is also intende d that the implementation of LLU in all the Member States at the same
time will avoid the emergence of a new form of "digital divide" within Europe, this time due to
significant variations in the quality and capability of access platforms for the Internet.

94.      The Commission noted in November 2001 that, although implementation of LLU had taken
place, the situation was, in practice, "very disappointing" as the number of lines actually unbundled
was very low (640,000 in the EU as a whole), and shared access to the local loop was available only
in four Member States, the number being limited to a few hundred. 133




           131
                Unlike other elements of Community telecoms legislation, LLU legislation is in the form of a
regulation, which means it is binding and directly applicable in all Member States. In contrast, directives
require transposition into Member State law.
           132
               OECD (2001b).
           133
               European Commission Press Release IP/01/1679.
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(c)     New regulatory framework134

National Regulatory Authorities (NRAs)

95.      Full independence of the National Regulatory Authority (NRA), both from suppliers and from
government, is a requirement under the existing regulatory framework, and has been strengthened in
the new Framework Directive.         In particular, "Member States that retain ownership or control of
undertakings providing electronic communications networks and or services shall ensure effective
structural separation of the regulatory function from activities associated with ownership or control."
This is significant because, although privatization has proceeded in the past decade, state involvement
is over 50% in Austria, Belgium, Finland, France, Greece, and Germany, and continues to a very
minor but symbolically important degree in Ireland, Italy, Portugal, and Spain; it is absent only in
Denmark and the United Kingdom.

Authorization

96.      The new authorization regime for telecoms operators is designed to replace the existing
licences. The main changes proposed are:

−       requiring all electronic communication services and networks to be covered by the general
        authorization and limiting the use of specific rights to the assignment of radio frequencies and
        numbers only, with attached conditions to be more limited in scope;
−       requiring NRAs to publish administrative costs and charges annually, and adjust charges
        accordingly if they exceed costs; and
−       allowing only fees for rights of use of the radio spectrum, numbers or rights of way that are
        "objectively justified and proportionate in relation to their intended purpose".

97.      These changes are designed to address shortcomings in the existing regime. The Licensing
Directive establishes the general authorization as preferred to the individual licence, mainly because
the former allows the licensing of all potential entrants capable of providing a service under the
established conditions. In practice, however, the European Commission notes "there is no approach
to authorising market entry for communications service providers, but a patchwork of fifteen national
regimes which are widely divergent in their basic approach and specific detail". 135 A study on the
issue of authorizations states "this could compromise the creation of a really competitive internal
market for telecommunications."136

98.     The Member States have also taken different approaches to other provisions. This was
demonstrated recently in the divergent approaches of Member States to allocating the spectrum for
the purpose of establishing 3G wireless networks.137 Some Member States chose a comparative
bidding process (beauty contest), others a competitive bidding process (auction), with some Member


        134
             The main source is DG Information Society (undated).
        135
             COM(2000)386, p. 2.
         136
             European Telecommunications Office (ETO) (1999).
         137
              According to Decision 128/1999 of the European Parliament and the Council on a coordinated
approach to UMTS, an authorization process was to be in place by 1 January 2000 in Member States, with the
purpose of allocating licences to operators to introduce third-generation wireless networks on their territory by
2002. A coordinated approach is required for roaming between 3G wireless national networks to be possible by
that date, thereby ensuring a seamless Community-wide service coverage; this operational pan-European 3G
system is to be compatible with the 3G mobile system called International Mobile Telecommunications-2000
(IMT 2000) developed by the International Telecommunications Union (ITU).
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States opting for a hybrid system containing elements of the two.138 The Commission has noted:
"The level of the licence fees achieved in the auctions which have occurred to date, in particular those
in the United Kingdom and Germany, as well as the divergence between the different methods used,
has given rise to considerable debate throughout the EU, and certain operators have complained that
the way in which licences have been awarded in certain Member States was not in conformity with
Community law". 139

Interconnection

99.       The new regulatory framework makes no change to the requirement under the existing
Directive that virtually all operators have a basic right and obligation to negotiate interconnection.
Operators with "significant market power" (SMP) have additional obligations including meeting all
reasonable requests for access to the network, acting in a non-discriminatory manner and
communicating agreements to the NRA, for possible circulation to third parties. Wire-based operators
with SMP are required to offer cost-oriented interconnection140, publish a reference offer, unbundle
interconnection charges, and maintain accounting separation between their interconnection and other
activities.141 The NRA has powers of intervention if necessary, including dispute resolution.

100. In the new regulatory framework, the concept of SMP is aligned with the competition law
notion of dominance. Implementing guidelines under public consultation in early 2001 reveal that
"dominance concerns normally arise only in the case of undertakings with market shares of over
40%", while SMP is currently defined at a 25% market share threshold. 142 In addition to these
guidelines, the Commission intends to adopt a "Recommendation on Relevant Product and Service
Markets", whose characteristics are such as to justify ex ante regulation. In the current framework,
SMP obligations have been placed on operators based on aggregate market share alone, rather than
being based on market conditions defined in accordance with competition policy criteria. In the new
framework, regulatory obligations will be lifted in all markets where competition is deemed effective,
that is, where there are no dominant undertakings.

Universal service

101. The scope of universal service obligations and provisions for their financing are maintained in
the new regulatory framework, subject to periodic review. The basic requirement will continue to be
connection to a public telephone network at a fixed location and at an affordable price, as well as
directory services and public payphones143; this will also permit functional Internet access, a new
universal service requirement. Financing universal service will continue to be assumed primarily by
the designated network operators, although there is provision for supporting the service from taxpayer
funds or by a levy on other market participants. Another aspect of the new framework is to introduce
number portability for mobile phone subscribers to ensure that switching service providers is less
         138
                   DG      Information      Society,    Mobile      Communications       [Online].      Available at:
http://europa.eu.int/information_society/topics/telecoms/radiospec/mobile/index_en.htm [15 September 2001].
           139
               COM(2000)814, p. 26.
           140
                As of 2002, the Commission discontinued the "best-practice" guidelines for interconnection pricing,
put in place in 1998, as a result of operators providing NRAs with appropriate cost-accounting information to
ensure that interconnection charges were cost-oriented.
           141
                The Interconnection Directive applies to both wire-based and wireless communications, but mobile
operators with SMP on the national market for interconnection are required only to offer cost-oriented
interconnection. In practice, because the national market for interconnection covers fixed-fixed, fixed-mobile
and mobile-mobile interconnection, most mobile operators’ charges for terminating traffic from the fixed
network are not subject to cost orientation.
           142
               COM(2001)175.
           143
               Directive 98/10/EC.
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costly, just as was mandated for wire-based operators with SMP, who also continue to be required to
offer carrier selection and carrier pre-selection.144

(5)     E-COMMERCE

(i)     Main characteristics

102. E-commerce (electronic commerce) refers specifically to the sale or purchase of goods and
services over the Internet, one of several platforms for the "distance" selling of goods and services
(others are the telephone, mail-order and fax).145 Categories distinguished include business-to-
business (B2B) and business-to-consumer (B2C) e-commerce, both of which exploit the expanded
range of information available to the business or consumer through the Internet. In the case of B2B,
enterprises use e-commerce to lower costs of inputs, improve efficiency and productivity, and provide
better customer service. In the case of B2C, consumers enjoy an alternative channel for purchasing
products (e.g., books and music) and services (e.g., entertainment and travel). In both cases,
enterprises gain access to a larger, in theory global, market via the World Wide Web.

103. Internet access is a necessary condition for e-commerce to take            place. While Internet access
is commonplace in medium - and large-sized EU enterprises, and                  is substantial among small
enterprises, just over 36% of EU households have home Internet access,          compared with over one -half
in the United States (section (4)). Among adults with home Internet             access, one third engages in
online shopping and one quarter does banking online.146

(ii)    Policy developments

(a)     Overview

104. The accelerated take-up of e-commerce by enterprises and consumers was identified as a goal
in the context of the e-Europe initiative, first launched in 1997 147, and set to be renewed at the Sevilla
European Council in June 2002. The initiative identified the increased penetration of the Internet as a
primary objective (section (4)), as well as the need to (a) build trust and confidence in the Internet
through protection of personal data and, for online transactions, information requirements from web
merchants, security and legal protection; and (b) prevent the fragmentation of the single market for
information society services by ensuring a consistent EU regulatory framework and pre-empting the
adoption of divergent legislation by Member States.

105. At the time of the last review of the EU in mid 2000, the EU had adopted several elements of
the planned regulatory framework, which concerned the definition of information society services and
exchange of information on national legislation148, the recognition of the legal effect of electronic
signatures and mechanisms to develop their use.149 During the period under review, the regulatory
framework was extended by the adoption of Directives on: electronic money institutions, under


        144
               Number portability allows users to retain their numbers independently of the enterprise providing
the service. Carrier selection and pre-selection allow users to make calls by using a short prefix.
          145
              The definition adopted by the WTO for the purposes of the work programme on e-commerce, is "the
production, distribution, marketing, sale or delivery of goods and services by electronic means" (WTO
document WT/L/274).
          146
              Eurobarometer Flash 103, June 2001.
          147
              COM(97)157.
          148
              Directive 98/34/EC. See WTO (2000), Annex IV.1.
          149
              Directive 1999/93/EC. See WTO (2000), Annex IV.1.
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financial services regulation (section (3)); a legal framework for e-commerce 150; a regulation on
jurisdiction and the enforcement of judgments in civil and commercial matters151, with application to
relations between e-merchants in one country and customers in another; protection of copyright and
neighbouring rights in the information society (Chapter III(3)(iv)); and the indirect taxation of
services delivered by electronic means. The Commission also adopted several decisions affecting
transfers of personal data to non-EU third countries, which have been the source of friction with major
trading partners.

106. For the future, the Commission is focussing on the development of a fully integrated market
for financial services, whether these are provided off-line or online, under the FSAP (section (3)).152
The Commission has also proposed a Directive on data privacy under its regulatory framework for
electronic communications (section (4)).

107. At a multilateral level, e-commerce has been the subject of a work programme, first
established by the WTO Ministerial Conference in Geneva in 1998, and continued under a mandate
from the Fourth Ministerial Conference in Doha in 2001. The Commission is of the view that
e-commerce either involves the physical delivery of goods and is thus merchandise trade within the
scope of GATT 1994, or involves electronic delivery, and therefore falls within the scope of the
GATS.153 As a result, off-line delivery from or to a trading partner is subject to the Community rules
and procedures regarding the importation and exportation of products (Chapter III(1) and (2)), while
electronic delivery is subject to the rules on services. The Community joined the consensus reached
by WTO Members, expressed in a Ministerial Declaration adopted at the Fourth Ministerial
Conference in Doha in 2001, on not imposing customs duties on electronic transmissions, at least until
the next Ministerial Conference in 2003.

(b)     E-commerce Directive

108. The e-commerce Directive was adopted in June 2000 and was to be implemented by Member
States by 16 January 2002; according to the Commission, as of 1 March 2002, three Member States
had met this deadline. Its scope in terms of information society services is comprehensive and
includes services provided on-line such as newspapers, databases, professional services, entertainment
(e.g., video-on-demand), and financial services.154

109. The first objective of the e-commerce Directive is to confirm that the single market principles
of free movement of services and freedom of establishment apply to information society service
providers established in a Member State, if they comply with the laws of the home Member State.155
Prior authorizations are not permitted. This "country of origin" approach is designed to ensure that
information society providers need only abide by one set of laws instead of 15, and that is the set with
which they are most familiar. The Commission has clarified that the term "establishment" is to be
interpreted in accordance with the EC Treaty and the jurisprudence of the Court of Justice, according
to which establishment arises when an economic activity is pursued using a fixed establishment for an
indeterminate duration. The Commission has stated that the freedom to provide information society

        150
              Directive 2000/31/EC.
        151
              Regulation 44/2001 replaced the 1968 Brussels Convention and the 1988 Lugano Convention.
          152
              See European Commission Press Release IP/01185 and MEMO/01/33.
          153
              WTO document WT/GC/W/306.
          154
              Defined by Directive 98/34/EC.
          155
               Exceptions are:       copyright and neighbouring rights, unsolicited communications by e-mail,
value-added tax (VAT) arrangements for electronic transmissions, as well as electronic money institutions,
regulated under financial services (section (3)), and insurance activities and the advertising of UCITS, on which
the host-country principle applies.
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services does not extend to EU branches of non-EU companies, as these are not European companies
within the meaning of Article 48 of the EC Treaty.

110. The second objective of the e         -commerce Directive is to establish that contracts concluded by
electronic means are recognized as such, and barriers to their conclusion are removed, complementing
the e-signatures Directive.156 Consumer confidence in the co nclusion of such contracts is to be
bolstered by transparency requirements on the steps to be followed to conclude a contract and
commercial communication requirements. However, the Directive does not deal with the aspects of
contract law covered by the Regulation on jurisdiction and the enforcement of judgments in civil and
commercial matters, which entered into force on 1 March 2002, and the 1980 Rome Convention on
the law applicable to contractual obligations.157 The new Regulation contains changes to the Brussels
Convention to ensure that consumers in the EU have the right to sue foreign Internet providers of
goods and services in the consumer's local court.158 However, the Rome Convention continues to
permit parties to a contract to agree on the law applicable to their contracts, which web merchants
typically define as their country of origin.

111. E-commerce is subject to the existing "general good" requirements designed to protect
consumers in sales situations in general (e.g., prohibition of misleading advertising) and distance
situations in particular; Member States may impose additional limits on these grounds. Although
retail financial services were excluded from the scope of the consumer protection requirements for
distance selling159, the Commission has proposed a Directive to fill this gap. The proposed new
Directive would (i) prohibit abusive marketing practices; (ii) restrict unsolicited marketing practices;
(iii) require the consumer to be provided with a comprehensive set of information before a contract is
concluded; and (iv) provide for a right of withdrawal (cooling-off period) for consumers.160 These
provisions would apply to the distance selling of financial services on the Internet as well as other
platforms, such as mail, telephone, and fax.

(c)      Processing of personal data and protection of privacy

112. Under the Data Protection Directive, which entered into force in 1998, all individuals
(whether they are EU citizens or not), have the right, as "data subjects", to have their personal data
handled lawfully, and may be required to give their prior consent to its processing, and to access that
data to ensure its accuracy. 161 "Data controllers", who decide the purpose and means of processing
(e.g., enterprises operating an Internet web-site), have obligations when processing personal data, and
are subject to supervision in each Member State, including when they are branches of non-EU
enterprises operating in the EU. Transfers of personal data to a non-EU country are permitted only if
it is determined as providing an "adequate" level of protection, or under limited conditions, on the
argument that "without such rules, the high standards of data protection established by the Directive
         156
               Exceptions include contracts covered by family law, succession law, or requiring the involvement of
a notary or registration with a public authority.
           157
               OJ C 27, 26/01/1998.
           158
                Article 2 establishes that the courts of the defendant’s country of domicile have jurisdiction, except
for insurance, employment, and consumer contracts, in which case the consumer, as the weaker party, is allowed
to bring the action in the courts of his domicile.
           159
               Directive 97/7/EC.
           160
               COM(1999)385. See European Commission Press Release IP/01/1325.
           161
               Directive 97/66/EC. See DG Internal Market (2001a). Directive 95/46/EC concerns the protection
of individuals with regard to the processing of personal data, and took effect in October 1998, while Directive
97/66/EC translates its principles to the telecoms sector, and took effect in October 2000. Article 29 of
Directive 95/46/EC established a Data Protection Working Party to draft implementing measures for adoption
by the Commission, and Article 31 established an advisory Committee composed of Member State
representatives.
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would quickly be undermined, given the ease with which data can be moved around on international
networks".162

113. The Commission may, upon request, recognize a non-EU third country as providing an
adequate level of protection on the basis of an analysis of data protection laws and dialogue with the
authorities. In July 2000, the Commission adopted decisions recognizing the adequacy of the data
protection regimes of Hungary, Switzerland, and of U.S. companies participating in the "safe harbour"
arrangement introduced by the Department of Commerce as from November 2000.163                     On
14 January 2002, an "adequate" level of protection was also recognized for transfers of certain
personal data from the EU to certain locations in Canada.164

114. For non-EU countries not recognized as offering adequate protection, or for U.S. companies
not covered by the "safe harbour" arrangement, personal data transfers are in principle not possible,
unless the individual has explicitly agreed to the transfer of his personal data, or if the transfer is made
to fulfil a contract involving the data subject, or unless an alternative safeguard exists. On the latter
point, one possibility is for the supervisory authority in a Member State to grant approval under ad
hoc arrangements. To foster a harmonized EU approach to such authorization, the Commission
decided in June 2001 on standard contractual clauses for a "data importer" and "data exporter", which
obliges supervisory authorities of Member States to recognize that the condition of adequate
protection is met.165 A "lighter" format of the contract was decided in December 2001, after
consultations with a large number of interested parties, for transfers of personal data from a data
controller in the EU to data processors in non-EU third countries not recognized as offering adequate
protection, which were deemed to present lower risks than general data transfer situations; it entered
into force on 1 April 2002.166

115. As part of its proposals for a new electronic communications framework, the Commission has
proposed to update and clarify the existing framework for the processing of personal data and the
protection of privacy for all electronic communications services, including the Internet, to ensure
technologically neutral rules.167 In particular, the proposal would establish a harmonized opt-in
system for unsolicited e-mail and for the inclusion of personal data in public subscriber directories.
The Commission has noted that unsolicited mail is costly to Internet users mainly due to the
connection charges that are assumed to download messages from the Internet.168



        162
             European Commission MEMO/01/228.
        163
              Commission Decisions 2000/519/EC, 2000/518/EC and 2000/520/EC, respectively. See European
Commission Press Release IP/00/865. The arrangement with the United States provides that EU citizens who
                                                                                                o
have a complaint about the way their data is handled by a safe harbour participant will be able t have recourse
to an independent dispute resolution mechanism (European Commission Press Release IP/00/301 and
MEMO/00/47). The Department of Commerce holds a list of 160 enterprises that have joined the "safe
harbour" arrangement (U.S. Department of Commerce online information.                            Available at:
http://www.export.gov/safeharbor).
         164
             Commission Decision 2002/2/EC. See European Commission Press Release IP/02/46.
         165
              Commission Decision 2001/497/EC. See European Commission Press Release IP/01/851 and
MEMO/01/228.
         166
              Commission Decision 2002/16/EC. See European Commission Press Release IP/02/102. U.S.
providers of financial services are excluded from the "safe harbour" and negotiations have taken place between
the Commission and the U.S. Treasury Department on bringing the benefits of an adequacy finding to the sector
in the light of the implementation in 2001 of the Gramm-Leach-Bliley Act of 1999 and Fair Credit Reporting
Act (USTR, 2001, p.138).
         167
             COM(2000)385.
         168
             DG Internal Market (2001c).
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116. Personal data processing by software or hardware used for communications over the Internet
is not covered by the proposal as it is in principle already subject to the existing framework on the
processing of personal data and protection of privacy. This matter has been examined by the Data
Protection Working Party, which has called on the industry to develop privacy-compliant products,
and is considering the development of a European standard or a certification procedure to enable
consumers to identify privacy-compliant products.169

(d)     Indirect taxation of deliveries of goods and services contracted over the Internet

117. Off-line delivery of goods resulting from e-commerce through imports into the Community
are subject to value-added tax (VAT) on the basis of the national-treatment principle. VAT is
assessed on goods supplied within the Community on the basis of the destination principle, except
when goods are supplied by a registered business in one Member State to a private consumer in
another, to which the VAT arrangements for distance sales apply. VAT is applied at the point of
origin up to a threshold for sales (between € 35,000 or € 100,000) established by the Member State of
destination, beyond which Community sellers are required to be registered for VAT in the Member
State of destination and, where appropriate, have a taxable representative there in order to submit the
necessary tax returns. However, the Court of Audit has indicated that there is little incentive for a
seller to voluntarily register, or for a Member State t enforce this requirement.170 Goods exported
                                                       o
outside the territory of the Community are VAT-exempt.

118. With respect to electronic deliveries to consumers in the EU from service providers
established outside the EU, the Community does not apply VAT, while service providers established
in the EU are assessed VAT for electronic deliveries to consumers in the EU on the basis of the
country-of-origin principle.171 The Commission proposed to modify these rules on the argument that
they "distort competition to the detriment of EU operators"172, and the proposal was adopted by the
Council in May 2002.173           Accordingly, the VAT arrangements for exports and imports of
merchandise, which are based on the destination principle, will apply to electronic services (e.g.,
software, data processing, supply of information).174 The EU will be considered the place of taxation
for a service supplied electronically by an operator established in another country to a recipient in the
EU and, conversely, a service supplied electronically by an operator established in the EU to a
recipient in another country will not be assessed Community VAT. Assessment of VAT will occur
for foreign suppliers of digital products to consumers (B2C), but they will be allowed to register with
only one tax administration, completing all their obligations online, to simplify implementation of the
rules.




        169
            DG Internal Market (2000).
        170
            Special Report No. 9/98 (OJ C 356, 1998).
        171
            Directive 77/388/EC.
        172
            COM(98)374.
        173
            European Commission Press Release IP/02/763.
        174
            COM(2000)349. See European Commission Press Release IP/00/583 and USTR (2001), p.138.
European Union                                                                             WT/TPR/S/102
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WT/TPR/S/102                                                                          Trade Policy Review
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APPENDIX TABLES
European Union                                                                                              WT/TPR/S/102
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Table AI.1
Merchandise exports (extra-EU trade) by region and country, 1995 and 1998-00
(€ billion and per cent)
 Description                                               1995                1998                 1999         2000

 Total exports                                              572.8              733.3                759.9        937.5
                                                                                       (Per cent)
 America                                                     26.9               31.0                 33.1         33.5
  United States                                              18.0               21.7                 24.1         24.7
  Canada                                                      1.8                2.0                  2.2          2.2
  Other America                                               7.1                7.4                  6.8          6.7
   Brazil                                                     2.0                2.1                  1.9          1.8
   Mexico                                                     0.8                1.3                  1.4          1.5
 Europe                                                      28.9               31.8                 30.9         30.5
  EFTA                                                       12.1               11.3                 11.6         10.5
   Switzerland                                                9.0                7.8                  8.3          7.6
   Norway                                                     3.0                3.3                  3.1          2.7
  Eastern Europe                                             12.0               15.1                 14.2         14.4
   Poland                                                     2.7                3.8                  3.8          3.6
   Czech Republic                                             2.0                2.3                  2.4          2.6
   Hungary                                                    1.5                2.3                  2.4          2.5
   Russian Federation                                         2.8                2.8                  1.9          2.1
 Other                                                        4.7                5.4                  5.2          5.6
  Turkey                                                      2.3                2.9                  2.7          3.2
 Asia                                                        31.0               24.4                 25.1         25.8
  Middle East                                                 7.2                6.8                  6.7          6.6
   Israel                                                     1.7                1.5                  1.7          1.7
   Saudi Arabia                                               1.5                1.6                  1.3          1.3
   United Arab Emirates                                       1.1                1.2                  1.3          1.3
  East Asia                                                  21.6               15.9                 16.6         17.4
   Japan                                                      5.7                4.2                  4.7          4.8
   China                                                      2.6                2.3                  2.5          2.7
   Hong Kong, China                                           2.8                2.3                  2.1          2.2
   Korea, Rep. of                                             2.2                1.2                  1.5          1.7
   Chinese Taipei                                             1.8                1.7                  1.7          1.7
   Singapore                                                  1.9                1.5                  1.6          1.6
  South Asia                                                  2.2                1.7                  1.8          1.9
   India                                                      1.6                1.3                  1.4          1.4
 Oceania                                                      2.4                2.1                  2.3          2.1
  Australia                                                   1.8                1.7                  1.8          1.7
 Africa                                                       9.0                7.9                  7.4          7.0
  Sub-Saharan Africa                                          3.6                2.7                  2.5          2.4
  Other Africa                                                5.4                5.2                  5.0          4.6
   South Africa                                               1.5                1.4                  1.3          1.2
 Other areas n.e.s                                            1.9                2.7                  1.2          1.1

Source:    European Commission, Eurostats, External and intra-European Union trade, monthly statistics, various issues
           (data for 1998 and 1999 were revised in the 2000 issue).
WT/TPR/S/102                                                                                                Trade Policy Review
Page 110


Table AI.2
Merchandise imports (extra-EU trade) by region and country, 1995 and 1998-00
(€ billion and per cent)
 Description                                              1995                 1998                 1999              2000

 Total extra-imports                                       545.1               710.5                779.8            1,026.8
                                                                                       (Per cent)
 America                                                    27.3                28.4                 27.7              26.3
  United States                                             19.0                21.1                 20.6              19.2
  Canada                                                     2.1                 1.8                  1.7               1.8
  Other America                                              6.2                 5.5                  5.3               5.3
   Brazil                                                    2.0                 1.9                  1.7               1.7
 Europe                                                     28.0                26.2                 27.3              27.5
  EFTA                                                      12.8                10.7                 10.8              10.4
   Switzerland                                               8.0                 6.9                  6.9               5.8
   Norway                                                    4.7                 3.6                  3.8               4.4
  Eastern Europe                                            11.9                12.1                 13.2              14.2
   Russian Federation                                        3.9                 2.7                  3.3               4.4
   Poland                                                    2.2                 2.3                  2.3               2.3
   Czech Republic                                            1.7                 2.1                  2.2               2.1
   Hungary                                                   1.4                 2.1                  2.3               2.1
 Other Europe                                                3.2                 3.4                  3.3               2.9
  Turkey                                                     1.7                 1.9                  1.9               1.7
 Asia                                                       33.5                34.1                 35.2              35.2
  Middle East                                                4.5                 3.4                  4.1               5.0
   Saudi Arabia                                              1.6                 0.9                  1.1               1.6
   Israel                                                    0.9                 1.0                  1.0               1.0
  East Asia                                                 26.8                28.6                 29.1              28.3
   Japan                                                    10.0                 9.2                  9.2               8.3
   China                                                     4.8                 5.9                  6.4               6.8
   Chinese Taipei                                            2.4                 2.7                  2.8               2.8
   Korea, Rep. of                                            2.0                 2.2                  2.4               2.4
   Malaysia                                                  1.7                 1.7                  1.7               1.7
   Singapore                                                 1.6                 1.7                  1.6               1.6
   Thailand                                                  1.2                 1.3                  1.3               1.2
   Hong Kong, China                                          1.3                 1.3                  1.4               1.1
   Indonesia                                                 1.1                 1.3                  1.1               1.1
  South Asia                                                 2.2                 2.1                  2.0               1.9
   India                                                     1.4                 1.4                  1.3               1.2
 Oceania                                                     1.4                 1.5                  1.3                1.2
 Africa                                                      8.6                 7.2                  7.3                8.2
  Sub-Saharan Africa                                         3.4                 2.6                  2.4                2.4
  Other Africa                                               5.2                 4.6                  4.9                5.8
   Algeria                                                   0.9                 0.7                  1.0                1.6
   South Africa                                              1.4                 1.3                  1.4                1.4
   Libyan Arab Jamahiriya                                    1.1                 0.8                  0.9                1.3
 Other areas n.e.s                                           1.3                 2.7                  1.3                1.6

Source:    European Commission, Eurostats, External and intra-European Union trade, monthly statistics, various issues
           (data for 1998 and 1999 were revised in the 2000 issue).
European Union                                                                                                              WT/TPR/S/102
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Table AI.3
Leading merchandise exports (extra-EU trade) by SITC Rev.3 category, 1997-00
(€ million and per cent)
                                                                                                Value                          Share of total
                                                                                             (€ million)                         (per cent)
 SITC     Description                                                       1997      1998                 1999      2000          2000

          Total exports                                                     720,446   731,577              759,798   937,471         100.0
  78      Road vehicles                                                     65,578     68,107               69,516    87,515            9.3
  77      Electrical   machinery,      apparatus    and       appliances,   51,527     53,903               56,747    74,771            8.0
          n.e.s
  74      General industrial machinery and equipment, n.e.s.                45,949     47,269               45,677    52,138            5.6
  79      Other transport equipment                                         36,424     39,309               41,568    50,374            5.4
  72      Machinery specialised for particular industries                   46,325     44,175               40,631    48,297            5.2
  76      Telecommunication and            sound     recording       and    27,233     28,045               31,352    43,451            4.6
          reproducing apparatus
  89      Miscellaneous manufactured articles, n.e.s.                       29,821     29,805               31,582    38,014            4.1
  71      Power-generating machinery and equipment                          29,081     32,776               31,850    38,455            4.1
  54      Medical and pharmaceutical products                               23,165     26,794               30,410    35,043            3.7
  51      Organic chemicals                                                 20,259     20,270               24,610    31,612            3.4
  75      Office machines and automatic data processing                     19,474     21,418               24,039    31,138            3.3
          machines
  66      Non-metallic mineral manufactures, n.e.s.                         24,035     22,572               25,064    30,881            3.3
  33      Petroleum,       petroleum     products       and       related   14,870     12,141               14,591    27,302            2.9
          materials
  87      Professional, scientific and controlling instruments              17,664     18,490               19,912    24,294            2.6
  65      Textile yarn, fabrics, made-up articles, n.e.s.                   20,143     20,256               20,092    23,331            2.5
  69      Manufactures of metals, n.e.s.                                    18,231     19,369               19,278    21,960            2.3
  67      Iron and steel                                                    19,050     17,699               14,962    19,410            2.1
  64      Paper, paperboard and articles of paper                           13,580     13,445               13,810    16,988            1.8
  84      Clothing and accessories                                          13,881     14,103               13,690    15,854            1.7
  57      Plastic in primary forms                                            9,896     9,150                9,730    12,384            1.3

  0+1     Food, beverages and tobacco                                        45,863    43,498               43,498    49,681            5.3
  2+4     Crude materials, animal and vegetable oils and fats                15,573    14,317               15,244    18,475            2.0
  3       Mineral fuels, lubricants and related materials                    16,993    13,888               16,460    30,160            3.2
  5       Chemicals                                                          92,934    95,261              106,464   127,932          13.6
  7       Machinery and transport equipment                                 330,342   343,725              352,034   436,625          46.6
  6+8     Paper, textile, iron and steel, clothing accessories,             203,481   202,019              205,988   250,977          26.8
          etc.

Source:      European Commission, Eurostats, External and intra-European Union trade, monthly statistics, various issues
            (data for 1998 and 1999 do not take into account revisions in 2000 issue).
WT/TPR/S/102                                                                                                         Trade Policy Review
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Table AI.4
Leading merchandise imports (extra-EU trade) by SITC Rev.3 category, 1997-00
(€ million and per cent)
                                                                                                Value                           Share of total
                                                                                             (€ million)                          (per cent)
 SITC     Description                                                       1997      1998                 1999       2000           2000

          Total imports                                                     670,529   712,370          776,707      1,026,792          100.0
  33      Petroleum, petroleum products and related materials                65,383    47,208              61,211    121,261            11.8
  77      Electrical machinery, apparatus and appliances, n.e.s.             49,803    54,418              61,201     92,124             9.0
  75      Office machines         and    automatic     data    processing    45,393    53,990              59,993     71,175             6.9
          machines
  84      Clothing and accessories                                           38,645    40,925              43,619     50,915             5.0
  76      Telecommunication     and          sound      recording     and    22,792    26,357              32,130     48,326             4.7
          reproducing apparatus
  78      Road vehicles                                                      29,953    36,827              42,913     48,220             4.7
  79      Other transport equipment                                          25,412    30,598              37,539     43,371             4.2
  89      Miscellaneous manufactured articles, n.e.s.                        27,869    29,693              32,256     39,004             3.8
  71      Power generating machinery and equipment                           19,441    23,350              27,141     34,735             3.4
  74      General industrial machinery and equipment                         18,201    20,790              22,875     28,538             2.8
  66      Non-metallic mineral manufactures, n.e.s.                          16,752    16,362              19,947     25,877             2.5
  68      Non-ferrous metals                                                 16,826    17,801              17,257     25,357             2.5
  87      Professional, scientific and controlling instruments               14,490    16,011              17,695     22,838             2.2
  51      Organic chemicals                                                  15,073    15,551              16,471     19,861             1.9
  65      Textile yarn, fabrics, made-up articles, n.e.s.                    15,480    16,370              16,012     18,799             1.8
  69      Manufactures of metals, n.e.s.                                     12,330    14,036              14,941     18,175             1.8
  34      Gas, natural and manufactured                                      12,461    10,797              10,189      17714             1.7
  54      Medicinal and pharmaceutical products                              10,747    12,614              14,907     17,558             1.7
  72      Special industry machinery                                         11,925    13,253              14,348     17,394             1.7
  67      Iron and steel                                                      9,289    12,302              10,159     14,475             1.4
  28      Metalliferous ores and metal scrap                                 11,993    11,384              10,575      14066             1.4
  05      Vegetables and fruit                                               12,291    12,617              13,511     13,896             1.4

  0+1     Food, beverages and tobacco                                        48,161   49,637               50,082     54,472             5.3
  2+4     Crude materials, animal and vegetable oils and fats                42,621   42,293               40,201     49,894             4.9
  3       Mineral fuels, lubricants and related materials                    84,795   64,854               77,925    147,612            14.4
  5       Chemicals                                                          51,220   55,186               58,590     70,672             6.9
  7       Machinery and transport equipment                                 227,827   265,511          303,995       391,125            38.1
  6+8     Paper, textile, iron and steel, clothing accessories, etc         195,841   210,626          223,586       278,033            27.1

Source:      European Commission, Eurostats, External and intra-European Union trade, monthly statistics, various issues
            (data for 1998 and 1999 do not take into account revisions in 2000 issue).
European Union                                                                                                          WT/TPR/S/102
                                                                                                                            Page 113


Table AII.1
Selected most recent WTO notifications of the European Communities, 1995 to 9 April 2002
  Agreement                               WTO Document                                        Content

  Multilateral Agreements on Trade in Goods
  GATT 1994a                              Schedule CXLb
                                                                                              Tariff concessions for EU-15
                                          G/STR/N/4/EEC and Add.1                             Article XVII (state-trading)
  Agriculture                             G/AG/N/EEC/36                                       Export subsidy commitments for
                                                                                              2000/01
                                          G/AG/N/EEC/35                                       Actions taken in 1999-2000 under the
                                                                                              Decision on Measures Concerning the
                                                                                              Possible Negative Effects of the
                                                                                              Reform Programme on Least-
                                                                                              Developed and Net Food-Importing
                                                                                              Developing Countries
                                          G/AG/N/EEC/34                                       Tariff quotas for marketing year 2000-
                                                                                              2001
                                          G/AG/N/EEC/1/Add.2, G/AG/N/EEC/14/Add.1,            Administration of tariff quotas for
                                          G/AG/N/EEC/15/Add.1, G/AG/N/EEC/3/Add.1             marketing year 2000-2001
                                          G/AG/N/EEC/2                                        Special safeguard provisions/trigger
                                                                                              prices
                                          G/AG/N/EEC/33                                       Special safeguard provisions/use in
                                                                                              marketing year 1999-2000
                                          G/AG/N/EEC/30 and Corr.1                            Domestic support commitments for
                                                                                              2001
  Sanitary and Phytosanitary Measures     G/SPS/N/EEC/1-164                                   Measures
  Textiles and Clothing                   G/TMB/N/60 series (most recent Add 5 and            Notification of quantitative restrictions
                                          6/Suppl.1)
                                          G/TMB/N/1, Corr.2 and Corr.2/Suppl.1                Products integrated into GATT 1994 as
                                                                                              of 1 January 1995
                                          G/TMB/N/207, Add.1 and Corr.1                       Products integrated into GATT 1994 as
                                                                                              of 1 January 1998
                                          G/TMB/N/363 and Add.1                               Products integrated into GATT 1994 as
                                                                                              of 1 January 2002
                                          G/TMB/N/424                                         Agreement between EU and Egypt
  Technical Barriers to Trade             G/TBT/Add.12, Rev.1 and Rev.2                       Implementation and administrative
                                                                                              arrangements
                                          G/TBT/CS/N/32                                       Acceptance of Code of Good Practice
                                          G/TBT/N96/; G/TBT/N97/; G/TBT/N98/;                 Measures
                                          G/TBT/N99/; G/TBT/Notif.00/; G/TBT/Notif.01/
  Anti-dumping                            G/ADP/N/1/EEC/2, Corr.1, Suppl.1 and Suppl.2        Laws and regulations
                                          G/ADP/N/85/EEC                                      Semi-annual report on anti-dumping
                                                                                              measures for July-Dec 2001
  CustomsValuation                        G/VAL/N/1/EEC/1 and Rev.1                           Principles of customs valuation
  Rules of Origin                         G/RO/N/1                                            Non-preferential rules of origin
  Import Licensing Procedures             G/LIC/N/1/EEC/1, Rev.1 and Rev.2, Add.1 and Add.2   Laws and regulations
                                          G/LIC/N/3/EEC/4 and Adds.1-27                       Replies to questionnaire on import
                                                                                              licensing procedures
                                          G/LIC/N/1/EEC/2/Add.3                               Introduction of import surveillance
                                                                                              (iron and steel products)
  Preshipment Inspection                  G/PSI/N/1                                           Laws and regulations for exports from
                                                                                              the EU
  Subsidies      and      Countervailing G/SCM/N/1/EEC/1                                      Laws and regulations
  Measures
                                          G/SCM/N/1/EEC/2, Suppl.1, Suppl.1/Corr.1 and        Change in law s and regulations
                                          Suppl.2
                                          G/SCM/N/71/EEC and Add.1-15                         Measures in 2000
                                                                                                                   Table AII.1 (cont'd)
WT/TPR/S/102                                                                                                     Trade Policy Review
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    Agreement                              WTO Document                                       Content

                                           G/SCM/N/81/EEC                                     Semi-annual report on countervailing
                                                                                              measures for July-Dec 2001
    Safeguards                             G/SG/N/1/EEC/1                                     Laws, regulations and administrative
                                                                                              procedures
                                           G/SG/N/1/EEC/2 and G/SG/N/1/EEC/3                  Pre-existing Article XIX measures
                                           G/SG/N/1/EEC/5 and Suppl.1                         Phase-out timetables
                                           G/SG/N/6,7 and 11/EEC/1                            Initiation of investigation
    State trading                          G/STR/N/5-7/EEC                                    New and full notification of state
                                                                                              trading enterprises
    General Agreement on Trade in Services

                                           GATS/SC/31, Suppl.1 and Rev.1, and Suppl.2 (EC-    Schedule of specific commitments on
                                           12); GATS/SC/7 (Austria); GATS/SC/33 (Finland);    services of the EC and Member States
                                           GATS/SC/82 (Sweden)
                                           GATS/EL/31 (EC-12); GATS/EL/7 (Austria);           List of Article II (MFN) Exemptions
                                           GATS/EL/33 (Finland); GATS/EL/82 (Sweden)

                                           GATS/SC/31/Suppl.3 (EC-15)                         Specific commitments on basic
                                                                                              telecommunications
                                           GATS/SC/31/Suppl.4 and Rev.1 (EC-15)               Specific commitments on financial
                                                                                              services
    Agreement on Trade-Related Aspects of Intellectual Property Rights


                                           IP/N/1/EEC/1 and Rev.1                             Implementation of TRIPS Agreement
                                           IP/N/1/EEC/C/1 and IP/N/1/EEC/C/2                  Laws and regulations on copyright and
                                                                                              neighbouring rights
                                           IP/N/1/EEC/E/1                                     Enforcement at the border
                                           IP/N/1/EEC/G/1 and IP/N/1/EEC/G/2                  Protection of geographical indications
                                                                                              and designations of origin for
                                                                                              agricultural products and foodstuffs
                                           IP/N/1/EEC/L/1 IP/N/1/EEC/L/2                      Legal protection of topographies of
                                                                                              semiconductor products
                                           IP/N/1/EEC/O/1 and IP/N/1/EEC/O/2                  Council Directives on labelling,
                                                                                              presentation and advertising of
                                                                                              foodstuffs, as well as misleading
                                                                                              advertising
                                           IP/N/1/EEC/P/1, IP/N/1/EEC/P/2, IP/N/1/EEC/P/3     Community patents
                                           and IP/N/1/EEC/P/4
                                           IP/N/1/EEC/T/1, IP/N/1/EEC/T/2 and                 Community trade marks
                                           IP/N/1/EEC/T/3

a           Except for Article XVI, reported under the Agreement on Subsidies and Countervailing Measures, and Article XXIV, reported in
            Table AII.2.
b           Circulated under cover of G/L/65/Rev.1 of 19 March 1996, and subsequent rectifications and modifications: G/MA/TAR/RS/16,
            2 April 1997;      G/MA/TAR/RS/30, 13 May 1997;       G/L/65/Rev.1/Add.2, 21 October 1997;         G/L/65/Rev.1/Add.2/Corr.1,
            10 February 1998; G/MA/TAR/RS/47, 10 February 1998; G/L/65/Rev.1/Add.3, 23 November 1998; and G/L/65/Rev.1/Add.4,
            1 July 1999.
Source:     WTO Secretariat.
  European Union                                                                                                              WT/TPR/S/102
                                                                                                                                  Page 115


Table AII.2
Regional trade agreements of the European Union, 2002
 Party                                                            Goods                                           Services
                                               Entry into force           Examination          Entry into force       Examination reference
                                                                           reference
  I.     CUSTOMS UNIONS

  Andorra                                      1 July 1991          WT/REG53/                n.a.                  n.a.
  Maltaa                                       1 April 1971         L/3665, 19S/90           n.a.                  n.a.
  San Marino                                   1 December           n.a.                     n.a.                  n.a.
                                               1992
  Turkey a                                     31 December          WT/REG22/                n.a.                  n.a.
                                               1995
  II. FREE TRADE AREAS

  Bulgariab                                    31 December          WT/REG1/                 1 February 1995       Pending
                                               1993
  Croatia                                      1 March 2002         notification pending     n.a.                  n.a.
  Cyprusa                                      1 June 1973          L/4009, 21S/94           n.a.                  n.a.
  Czech Republicb                              1 March 1992         WT/REG18/                1 February 1995       Pending
  Denmark (Faroe Islands)                      1 January 1997       WT/REG21/                n.a.                  n.a.
  Estoniab                                     1 January 1995       WT/REG8/                 12 June 1995          Notification submitted
  Former Yugoslav Republic of                  9 April 2001          WT/REG129/              n.a.                  n.a.
  Macedonia
  Hungaryb                        1 March 1992                      WT/REG18/                1 February 1994       WT/REG50
  Icelandc                        1 April 1973                      L/3902, 20S/158          1 January 1994        Pending
  Israeld                         1 June 2000                       WT/REG124/               n.a.                  n.a.
  Latviab                         1 January 1995                    WT/REG7/                 12 June 1995          Notification submitted
  Lithuaniab                      1 January 1995                    WT/REG9/                 12 June 1995          Notification submitted
  Liechtenstein c                 1 January 1973                    L/3893, 20S/196          1 January 1994        Pending
  Mexico                          1 July 2000                       WT/REG109/               1 July 2000           Pending
  Moroccod                        1 March 2000                      WT/REG112/               n.a.                  n.a.
  Norwayc                         1 July 1973                       L/3996, 21S/83           n.a.                  n.a.
  Palestinian Authorityd          1 July 1997                       WT/REG43/                n.a.                  n.a.
  Polandb                         1 March 1992                      WT/REG18/                1 February 1994       WT/REG51/
  Romaniab                        1 May 1993                        WT/REG2/                 1 February 1995       Pending
  Slovak Republicb                1 March 1992                      WT/REG18/                1 February 1995       WT/REG52/
  Sloveniab                       1 January 1997                    WT/REG32/                10 June 1996          Notification submitted
  South Africa                    1 January 2000                    WT/REG113/               n.a.                  n.a.
  Switzerlande                    1 January 1973                    L/3893, 20S/196          1 January 1994        Pending
  Tunisiad                        1 March 1998                      WT/REG69/                n.a.                  n.a.
  III. NON -RECIPROCAL ACCESS TO THE EU MARKET

  Algeriaf                                     1 July 1976          L/4559, 24S/80           n.a.                  n.a.
  Egypt g                                      1 July 1977          L/4660, 25S/114          n.a.                  n.a.
  Jordan g                                     1 July 1977          L/4559, 24S/80           n.a.                  n.a.
  Lebanonf                                     1 July 1977          L/4663, 25S/142          n.a.                  n.a.
  Syriaf                                       1 July 1977          L/4661, 25S/123          n.a.                  n.a.

  a            Association agreement, forerunner to possible accession.
  b            Europe Agreement, forerunner to possible accession.
  c            European Economic Area (EEA).
  d            Euro-Mediterranean association agreement.
  e            Seven bilateral agreements of EEA type.
  f            Euro-Mediterranean association agreement under negotiation.
  g            Euro-Mediterranean association agreement signed but not entered into force.
  n.a.         Not applicable.

  Source:      WTO Secretariat;         DG Trade (2001a), "EC Regional Trade Agreements" [Online].                                  Available at:
               http://europa.eu.int/comm/trade/pdf/ecrtagr.pdf [1 November 2001]
WT/TPR/S/102                                                                                           Trade Policy Review
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Table AIII.1
Applied MFN tariffs by HS Chapter, 2002
(Per cent and US$ billion)
                Numb                                                                  MFN 2002                            Imports
                er of
                8-                                                  Simple        Min.       Max.        Standard           2000
 HS code                    Description                             average                              deviation
                digit
                HS                                                                                                         (US$
                lines                                                     (%)         (%)        (%)            (%)
                                                                                                                          billion)

 Total          10,400                                              6.4         0.0         209.9        11.3              807.4
                2,354       HS Chapters 01-24                       15.9        0.0         209.9        20.5              56.9

                8,046       HS Chapters 25-97                       3.8         0.0         39.8         3.7               750.5

 01             55          Live animals                            20.6        0.0         107.8        30.2              0.8

 02             236         Meat and edible meat offal              28.3        0.0         192.2        31.1              2.7

 03             324         Fish & crustacean, mollusc & other      9.8         0.0         23.0         5.7               8.6
                            aquatic invertebrate

 04             175         Dairy prod., birds' eggs, natural       38.4        0.0         209.9        36.8              1.0
                            honey, edible prod. n.e.s.

 05             21          Products of animal origin, n.e.s or     0.2         0.0         5.1          1.1               0.8
                            included

 06             42          Live trees & other plant, bulb, root,   6.0         0.0         10.9         3.4               1.0
                            cut flowers, etc.

 07             108         Edible vegetables and certain roots     12.7        0.0         150.1        21.3              2.4
                            and tubers

 08             128         Edible fruit and nuts, peel of citrus   9.0         0.0         118.1        11.5              7.3
                            fruit or melons

 09             42          Coffee, tea, maté and spices            3.1         0.0         12.5         4.3               4.7

 10             55          Cereals                                 39.2        0.0         101.1        27.7              1.4

 11             83          Prod. mill. indust., malt, starches,    22.2        1.2         84.4         16.8              0.1
                            inulin, wheat gluten

 12             79          Oilseeds, oleaginous. fruit, misc.      1.8         0.0         52.3         6.2               4.9
                            grain, seed, fruit, etc.

 13             18          Lac, gums, resins & other vegetable     2.2         0.0         19.2         5.1               0.4
                            saps & extracts

 14             8           Vegetable plaiting materials,           0.0         0.0         0.0          0.0               0.1
                            vegetable products

 15             128         Animal/vegetable fats & oils & their    8.9         0.0         75.8         13.2              1.7
                            cleavage products

 16             92          Prep. of meat, fish or crustaceans,     18.5        0.0         97.2         11.5              2.5
                            molluscs, etc.

 17             47          Sugars and sugar confectionery          21.4        2.1         114.4        24.0              1.3

 18             27          Cocoa and cocoa preparations            11.8        0.0         68.9         13.0              1.6

 19             51          Prep. of cereal, flour, starch/milk,    16.4        7.6         49.6         10.5              0.5
                            pastrycooks' products

 20             321         Prep. of vegetables, fruit, nuts or     20.6        0.0         146.9        13.2              2.7
                            other parts of plants

 21             42          Miscellaneous edible preparations       9.6         0.0         21.1         5.1               1.0

                                                                                                               Table AIII.1 (cont'd)
European Union                                                                                       WT/TPR/S/102
                                                                                                         Page 117



           Numb                                                               MFN 2002                          Imports
           er of
           8-                                               Simple                             Standard           2000
 HS code           Description                                            Min.       Max.
           digit                                            average                            deviation
           HS                                                                                                    (US$
           lines                                                  (%)         (%)        (%)          (%)       billion)

 22        175     Beverages, spirits and vinegar           5.5         0.0         58.6       9.0               2.8

 23        67      Residues/waste from the food ind.,       7.0         0.0         76.0       13.6              5.0
                   prep. animal fodder

 24        30      Tobacco and manufactured tobacco         18.3        2.2         74.9       21.2              1.6
                   substitutes

 25        92      Salt, sulphur, earth/stone, plastering   0.4         0.0         5.9        1.0               3.2
                   mat., lime & cement

 26        53      Ores, slag and ash                       0.0         0.0         0.0        0.0               7.3

 27        111     Mineral fuels, oils & products of        1.4         0.0         8.0        1.9               122.1
                   their distillation

 28        266     Inorg. chem., compounds of precious      4.5         0.0         7.2        2.0               4.8
                   metals, radioactive elements

 29        550     Organic chemicals                        3.7         0.0         39.8       3.9               17.8

 30        59      Pharmaceutical products                  0.1         0.0         6.5        0.8               10.9

 31        37      Fertilizers                              4.2         0.0         7.4        3.0               1.9

 32        67      Tanning/dyeing extract, tannins &        5.1         0.0         6.5        2.2               3.1
                   derivs., pigment

 33        59      Essential oils/resinoids, perf.,         2.9         0.0         17.3       3.6               2.5
                   cosmetic/toilet prep.

 34        35      Soap, organic surface-active agents,     1.9         0.0         6.5        2.2               1.2
                   washing prep., etc.

 35        32      Albuminoidal subs., modified             7.0         0.0         23.2       5.9               0.8
                   starches, glues, enzymes

 36        10      Explosives, pyrotech. prod., matches,    6.3         5.7         6.5        0.3               0.3
                   pyrop. alloy

 37        60      Photographic or cinematographic          5.6         0.0         23.3       3.3               1.8
                   goods

 38        136     Miscellaneous chemical products          5.5         0.0         22.2       3.1               5.4

 39        263     Plastics and articles thereof            5.7         0.0         8.4        2.7               15.8

 40        112     Rubber and articles thereof              2.4         0.0         6.5        2.2               7.2

 41        79      Raw hides and skins (not furskins)       2.6         0.0         6.5        2.7               3.3
                   and leather

 42        38      Articles of leather, saddlery/harness,   5.0         1.7         9.7        2.7               5.5
                   travel goods

 43        41      Furskins and artificial fur,             1.4         0.0         3.7        1.3               0.4
                   manufactures thereof

 44        165     Wood and articles of wood, wood          2.6         0.0         10.0       3.1               12.9
                   charcoal

 45        13      Cork and articles of cork                3.3         0.0         4.7        2.3               0.1

 46        12      Manufactures of straw, esparto/other     2.9         0.0         4.7        1.4               0.4
                   plaiting mat., etc.

                                                                                                     Table AIII.1 (cont'd)
WT/TPR/S/102                                                                                  Trade Policy Review
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          Numb                                                               MFN 2002                            Imports
          er of
          8-                                               Simple                               Standard           2000
HS code           Description                                            Min.       Max.
          digit                                            average                              deviation
          HS                                                                                                      (US$
          lines                                                  (%)         (%)        (%)            (%)       billion)

47        23      Pulp of wood/fibrous cellulosic          0.0         0.0         0.0          0.0               5.6
                  material, waste, etc.

48        208     Paper and paperboard, articles of        1.7         0.0         3.2          0.8               6.9
                  pulp thereof

49        26      Printed books, newspapers, pictures      0.5         0.0         1.6          0.6               2.8
                  & other products

50        26      Silk                                     5.0         0.0         7.5          2.7               0.4

51        80      Wool, fine/coarse animal hair,           5.1         0.0         9.8          3.8               1.8
                  horsehair yarn/fabric

52        162     Cotton                                   6.8         0.0         8.4          2.3               3.7

53        43      Other vegetable textile fibres, paper    3.1         0.0         9.2          3.4               0.4
                  yarn/woven fabric

54        88      Man-made filaments                       6.7         3.8         8.6          1.8               3.0

55        168     Man-made staple fibres                   7.1         4.6         8.6          1.8               2.2

56        66      Wadding, felt & non-woven, yarns,        6.4         3.2         12.0         2.3               0.9
                  twine, cordage

57        39      Carpets and other textile floor          7.8         3.7         9.2          1.5               1.3
                  coverings

58        56      Special woven fabric, tufted tex.        7.9         5.0         9.4          1.4               0.6
                  fabric, lace, tapestries

59        42      Impregnated, coated, cover/laminated     6.5         4.0         9.2          1.6               0.7
                  textile fabric

60        65      Knitted or crocheted fabrics             8.7         6.5         8.8          0.4               0.8

61        171     Apparel & clothing accessories,          11.9        8.0         12.4         1.1               17.2
                  knitted or crocheted

62        204     Apparel & clothing accessories, not      11.9        6.3         12.4         1.5               21.1
                  knitted/crocheted

63        91      Other made-up textile articles, sets,    10.1        0.0         12.4         3.3               3.8
                  worn clothing

64        82      Foot wear, gaiters and the like, parts   10.0        3.0         17.0         5.4               7.8
                  thereof

65        15      Headgear and parts thereof               2.5         0.0         5.7          1.3               0.6

66        9       Umbrellas, walking-sticks, seat-         4.3         2.7         5.2          0.9               0.3
                  sticks, whips, etc.

67        8       Prepared feathers/down, artificial       2.8         1.7         4.7          1.2               0.5
                  flowers, articles of human hair

68        74      Art. of stone, plaster, cement,          1.2         0.0         3.7          1.0               1.6
                  asbestos, mica/sim. mat.

69        53      Ceramic products                         4.8         0.0         12.0         2.4               2.2

70        131     Glass and glassware                      4.8         0.0         11.0         3.0               3.1

                                                                                                      Table AIII.1 (cont'd)
European Union                                                                                                  WT/TPR/S/102
                                                                                                                    Page 119



                Numb                                                                    MFN 2002                       Imports
                er of
                8-                                                    Simple                              Standard       2000
 HS code                    Description                                             Min.       Max.
                digit                                                 average                             deviation
                HS                                                                                                      (US$
                lines                                                       (%)         (%)        (%)           (%)   billion)

 71             63          Natural/cultured pearls, precious         0.7         0.0         4.0         1.4           31.6
                            stones/metals, coins
 72             432         Iron and steel                            1.1         0.0         7.0         0.8           12.1
 73             273         Articles of iron or steel                 2.2         0.0         3.7         1.1           9.6
 74             69          Copper and articles thereof               3.3         0.0         5.2         2.1           6.4
 75             18          Nickel and articles thereof               0.6         0.0         3.3         1.2           2.4
 76             64          Aluminium and articles thereof            6.3         0.0         10.0        2.0           9.6

 78             13          Lead and articles thereof                 2.7         0.0         5.0         2.2           0.2
 79             12          Zinc and articles thereof                 3.1         0.0         5.0         1.6           0.7
 80             8           Tin and articles thereof                  0.0         0.0         0.0         0.0           0.4
 81             73          Other base metals, cermets, articles      3.2         0.0         9.0         2.8           1.3
                            thereof
 82             105         Tools, implements and cutlery of          3.1         1.7         8.5         1.8           4.0
                            base metal
 83             50          Miscellaneous articles of base metal      2.1         0.0         3.7         1.1           2.2
 84             1,028       Nuclear reactors, boilers, mch./mech.     1.7         0.0         9.7         1.4           118.4
                            appliance, parts
 85             655         Electrical mch. equip. parts thereof,     2.8         0.0         14.0        3.4           116.8
                            sound recorders
 86             40          Railway/tramway locom., rolling-          1.8         0.0         3.7         0.6           1.1
                            stock & parts thereof, etc.
 87             180         Vehicles, other than railway/tramway      6.4         0.0         22.0        5.4           39.6
                            parts/accessories
 88             34          Aircraft, spacecraft, and parts thereof   1.8         0.0         7.7         2.0           12.2
 89             39          Ships, boats and floating structures      1.1         0.0         2.7         1.0           3.5

 90             300         Optical, photo., cinemas, checking,       1.7         0.0         6.7         1.8           29.8
                            precision
 91             63          Clocks and watches and parts thereof      3.8         0.0         11.2        1.9           3.8

 92             33          Musical instruments, parts and            3.2         1.7         4.0         0.5           0.7
                            accessories thereof
 93             30          Arms and ammunition, parts and            2.3         0.0         3.2         1.1           0.2
                            accessories thereof
 94             86          Furniture, bedding, mattress, mattress    2.1         0.0         5.7         1.9           12.3
                            support, cushions

 95             79          Toys, games & sports requisites,          2.5         0.0         4.7         1.3           9.4
                            parts & accessories thereof
 96             72          Miscellaneous manufactured articles       3.3         0.0         7.7         1.5           2.1

 97             7           Works of art, collectors' pieces and      0.0         0.0         0.0         0.0           2.3
                            antiques


Source:    WTO Secretariat calculations, based on Europa online information.              Available at: http://europa.eu.int/eur-
           lex/en/index.html official journal L279); and information provided by Commission officials.
WT/TPR/S/102                                                                                                                        Trade Policy Review
Page 120


Table AIII.2
Quantitative restrictions on imports of textile and clothing products after Stage III of liberalization, 2002-04a
 Category Description                                                                                                Countries subject to restrictions

 Group I A
 1        Cotton yarn, not for retail sale                                                                           Argentina; Brazil; India; Indonesia; Pakistan;
                                                                                                                     Peru; Korea, Rep. of; Thailand
 2          Woven fabrics of cotton, other than gauze, terry fabrics, narrow woven fabrics, pile fabrics,            Argentina; Brazil; Hong Kong, China; India;
            chenille fabrics, tulle and other net fabrics                                                            Indonesia; Malaysia; Pakistan; Peru;
                                                                                                                     Singapore; Korea, Rep. of; Thailand
 2(a)            Of which: Other than unbleached or bleached                                                         Argentina; Brazil; Hong Kong, China; India;
                                                                                                                     Indonesia; Malaysia; Pakistan; Singapore;
                                                                                                                     Korea, Rep. of; Thailand
 3          Woven fabrics of synthetic fibres (discontinuous or waste) other than narrow woven fabrics, pile         Brazil; Hong Kong, China; India; Indonesia;
            fabrics (including terry fabrics) and chenille fabrics                                                   Malaysia; Pakistan; Singapore; Korea, Rep.
                                                                                                                     of; Thailand
 3(a)            Of which: Other than unbleached or bleached                                                         Hong Kong, China; India; Indonesia;
                                                                                                                     Malaysia; Korea, Rep. of; Thailand
 4          Shirts, T -shirts, lightweight fine knit roll, polo or turtle necked jumpers and pullovers (other than   Brazil; Hong Kong, China; India; Indonesia;
            wool or fine animal hair), undervests and the like, knitted or crocheted                                 Macau; Malaysia; Pakistan; Philippines;
                                                                                                                     Singapore; Korea, Rep. of; Thailand
 5          Jerseys, pullovers, slip-overs, waistcoats, twinsets, cardigans, bed-jackets and jumpers (other than     Hong Kong, China; India; Indonesia; Macau;
            jackets and blazers), anoraks, windcheaters, waister jackets and the like, knitted or crocheted          Malaysia; Pakistan; Philippines; Singapore;
                                                                                                                     Korea, Rep. of; Thailand
 6          Men's or boys' woven breeches, shorts other than swimwear and trousers (including slacks);               Brazil; Hong Kong, China; India; Indonesia;
            women's or girls' woven trousers and slacks, of wool, of cotton or of man-made fibres; lower parts       Macau; Malaysia; Pakistan; Philippines;
            of tracksuits with lining other than category 16 or 29, of cotton or of man-made fibres                  Singapore; Sri Lanka; Thailand
 7          Women's or girls' blouses, shirts and shirt -blouses whether or not knitted or crocheted, of wool, of    Hong Kong, China; India; Indonesia; Macau;
            cotton or of man-made fibres                                                                             Malaysia; Pakistan; Philippines; Singapore;
                                                                                                                     Korea, Rep. of; Sri Lanka; T hailand
 8          Men's or boys' shirts, other than knitted or crocheted, of wool, of cotton or of man-made fibres         Hong Kong, China; India; Indonesia; Macau;
                                                                                                                     Malaysia; Pakistan; Philippines; Singapore;
                                                                                                                     Korea, Rep. of; Sri Lanka; Thailand
 9          Terry towelling and similar woven terry fabrics of cotton; toilet linen and kitchen linen, other than    Brazil; India; Pakistan; Korea, Rep. of
            knitted or crocheted of terry towelling and woven terry fabrics, of cotton
 20         Bed-linen, other than knitted or crocheted                                                               Brazil; India; Macau; Pakistan; Thailand
 22         Yarn of staple or waste synthetic fibres, not put up for retail sale                                     Brazil; Malaysia; Korea, Rep. of; Thailand
 23         Yarn of staple or waste artificial fibres, not put up for retail sale                                    India; Indonesia
 39         Table linen, toilet and kitchen linen, other than knitted or crocheted, other than of terry towelling    Brazil; Hong Kong, China; India; Macau
            or similar terry fabrics of cotton
 Group II B
 12       Panty-hose and tights, stockings, under-stockings, ankle-socks, sockettes and the like, knitted or         Hong Kong, China; Korea, Rep. of; Thailand
          crocheted, other than for babies, including stockings for varicose veins, other than products of
          category 70
 13         Men's or boys' underpants and briefs, women's or girls' knickers and briefs, knitted or crocheted,       Hong Kong, China; Macau; Philippines;
            of wool, of cotton or of man-made fibres                                                                 Korea, Rep. of
 14         Men's or boys' woven overcoats, raincoats, and other coats, cloaks and capes of wool, of cotton or       Korea, Rep. of
            of man-made fibres (other than parkas of category 21)
 15         Women's or girl's woven overcoats, raincoats and other coats, cloaks and capes; jackets and              India; Macau; Philippines; Korea, Rep. of
            blazers, of wool, of cotton or of man-made fibres (other than parkas of category 21)
 16         Men's or boys' suits and ensembles, other than knitted or crocheted, of wool, of cotton or of man-       Hong Kong, China; Macau; Korea, Rep. of
            made fibres, excluding ski-suits, men's or boys' tracksuits with lining with an outer shell of a
            single identical fabric, of cotton or of man-made fibres
 17         Men's or boys' jackets and blazers, other than knitted or crocheted, of wool, of cotton or of man-       Korea, Rep. of
            made fibres
 ex21       Parkas; anoraks, windcheaters, waister jackets and the like, other than knitted or crocheted, of         Hong Kong, China; Indonesia; Macau;
            wool, of cotton or of man-made fibres. Upper parts of tracksuits with lining other than                  Philippines; Korea, Rep. of; Sri Lanka;
            category 16 and 29, of cotton or of man-made fibres                                                      Thailand
 26         Women's or girls' dresses, of wool, of cotton or of man-made fibres                                      Hong Kong, China; India; Macau; Pakistan;
                                                                                                                     Philippines; Korea, Rep. of; Thailand
 28         Trousers, bib and brace overalls, breeches, and shorts (other than swimwear), knitted or                 Pakistan; Korea, Rep. of
            crocheted, of wool, of cotton or of man-made fibres
 29         Women's or girls' suits and ensembles, other than knitted or crocheted, of wool, of cotton or of         Hong Kong, China; India; Korea, Rep. of
            man-made fibres, excluding ski suits; women's or girls tracksuits with lining with an outer shell
            of an identical fabric, of cotton or of man-made fibres
 31         Brassières, woven, knitted or crocheted
                                                                                                                                                Table AIII.2 (cont'd)
European Union                                                                                                                         WT/TPR/S/102
                                                                                                                                           Page 121



Category Description                                                                                              Countries subject to restrictions
78         Garments, other than knitted or crocheted, excluding garments of categories 6, 7, 8, 14, 15, 16,       Macau; Korea, Rep. of
           17, 18, 21, 26, 27, 29, 72, 76, and 77
83         Overcoats, jackets, blazers and other garments, including ski suits, knitted or crocheted, excluding   Hong Kong, China; Macau; Korea, Rep. of
           garments of categories 4, 5, 7, 13, 24, 26, 27, 28, 68, 69, 72, 73, 74, and 75
Group III A
35        Woven fabrics of synthetic fibres (continuous), other than those for tyres of category 114              Indonesia; Korea, Rep. of
ex36       Woven fabrics of continuous artificial fibres, other than those for tyres of category 114              Korea, Rep. of
ex37       Woven fabrics of artificial staple fibres                                                              Korea, Rep. of
50         Woven fabrics of sheep's or lambs' wool or of other fine animal hair                                   Korea, Rep. of
Group III B
ex67      Knitted or crocheted clothing accessories other than for babies; household linen of all kinds,          Korea, Rep. of
          knitted or crocheted; curtains (including drapes) and interior blinds, curtain or bed valances and
          other furnishing articles knitted or crocheted; knitted or crocheted blankets and travelling-rugs,
          other knitted or crocheted articles including parts of garments or of clothing accessories
97         Nets and netting made of twine, cordage or rope and made-up fishing nets of yarn, twine, cordage       Korea, Rep. of; Thailand
           or rope
Group V
135        Woven fabrics of coarse animal hair or of horsehair                                                    Hong Kong, China

a          Excluding quantitative restrictions affecting China (WTO documents G/TMB/N/60/Add.5 and G/TMB/N/64/Add.2), which acceded to
           the WTO in late 2001, or quantitative restrictions affecting Chinese Taipei, which also acceded to the WTO in late 2001.
Note:      Direct exports; trade under outward processing arrangements.

Source:    WTO documents G/TMB/N/60, 19 April 1995;                                    G/TMB/N/1/Corr.2/Suppl.1, 20 February 1998;                          and
           G/TMB/N/363 and Add.1.
WT/TPR/S/102                                                                                                     Trade Policy Review
Page 122


Table AIV.1
Main indicators of support by commodity, 1986-2000
                                                              1986-88        1998-2000              1998            1999                 a
                                                                                                                                     2000

    Wheat                    PSE (Euro mn)                       7,874            9,496            9,685          10,234             8,570
                             Percentage PSE                         52               49               48              54                43
    Maize                    PSE (Euro mn)                       2,862            2,308            2,121           2,448             2,355
                             Percentage PSE                         52               38               37              40                36
    Other grains             PSE (Euro mn)                       5,186            6,392            7,311           6,670             5,196
                             Percentage PSE                         56               58               65              61                46
    Rice                     PSE (Euro mn)                        391              147               224             146                71
                             Percentage PSE                        57               17                26              17                 8
    Oilseeds                 PSE (Euro mn)                       2,828            1,188            1,090           1,212             1,261
                             Percentage PSE                         59               27               22              28                30
    Sugar                    PSE (Euro mn)                       2,877            2,799            2,699           3,318             2,559
                             Percentage PSE                         60               53               52              58                49
    Milk                     PSE (Euro mn)                      18,054           17,165           19,310          16,704            15,481
                             Percentage PSE                         57               48               54              48                43
    Beef and veal            PSE (Euro mn)                      13,676           20,588           20,543          21,364            19,856
                             Percentage PSE                         59               76               77              77                75
    Sheepmeat                PSE (Euro mn)                       3,647            3,614            3,548           3,912             3,383
                             Percentage PSE                         70               56               57              59                52
    Pigmeat                  PSE (Euro mn)                       1,170            5,064            2,267           7,175             5,749
                             Percentage PSE                          7               25               11              39                25
    Poultry                  PSE (Euro mn)                       1,040            2,782              954           2,697             4,695
                             Percentage PSE                         14               33               10              32                57
    Eggs                     PSE (Euro mn)                        660              506               493             627               398
                             Percentage PSE                        14               12                11              15                 9
    Other commodities        PSE (Euro mn)                      25,566           29,301           28,352          31,217            28,334
                             Percentage PSE                         40               28               28              30                28
    All commodities          PSE (Euro mn)                      85,829          101,350           98,596         107,546            97,907
                             Percentage PSE                         44               40               39              43                38

a              Provisional

Note:          The Producer Support Estimate (PSE) for "other commodities" is the residual of the PSE for all commodities minus the PSE for
               the commodities listed above.

Source:        OECD (2001), Agricultural Policies in OECD Countries:                Monitoring and Evaluation 2001, Paris:           OECD
               Secretariat.
European Union                                                                                                         WT/TPR/S/102
                                                                                                                           Page 123


Table AIV.2
Share of telecoms incumbents in call segments, 2001
                                                                   Share of telecoms incumbents (or subsidiaries) in retail revenue
    Country                  Name
                                                        Internet calls             Local calls        Long-distance         International

    Austriaa                 Post und Telekom Austria        85                      85                     85                    85
                             AG
    Belgium a                Belgacom                        99                      99                     95                    89
    Denmark                  Tele Danmark                    74                      74                     74                    74
    Finland                  Sonera Limited                  95                      95                     32                    54
    France                   France Telecom                  77                      98                     74                    79
    Germany                  Deutsche Telekom AG             70                      70                     70                    61
    Greece                   OTE                             100                    100                    100                   100
    Ireland                  Eircom                          95                      95                     64                    76
    Italy                    Telecom Italia                  88                      93                     76                    60
              a
    Luxembourg               P&T Luxembourg                  100                    100                     89                    89
    Netherlands              KPN Telecom BV                  98                      99                     79                    69
    Portugala                Telecom Portugal                100                    100                    100                   100
    Spain                    Telefónica                      87                      94                     86                    86
    Sweden                   Telia                           82                      82                     82                    59
    United                   BT                              62                      70                     59                    48
    Kingdom                  Kingston Communications         62                      70                     59                    48

a               1999 data.

Source:         COM(2001)706, Annex I; and information provided by Commission officials.

                                                             __________

								
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