European Union: November 1997
The European Union's single market programme and liberalization under the WTO have generally improved access conditions for the EU's trading partners and increased exposure of the EU economy to international competition and structural change, says a new WTO Secretariat report.
WTO implementation and single market completion lead to greater liberalization in the European Union
The European Union's single market programme and liberalization under the WTO have generally improved access conditions for the EU's trading partners and increased exposure of the EU economy to international competition and structural change, says a new WTO Secretariat report. However, despite progressive liberalization, there are still significant internal obstacles to efficient resource allocation. These imply higher costs in some industrial and services sectors with adverse consequences on growth and competitiveness. The present transitional period in European economic integration presents challenges both for the EU and the multilateral trading system.
The WTO Secretariat report on the EU's trade policies and practices covers changes since the last Trade Policy Review, held in 1995. The WTO report, along with a policy statement prepared by the European Union will provide the basis for a review of the EU's trade policies and practices in the Trade Policy Review Body on 25 and 26 November.See footnote 1
The report confirms the continuation of the EU's steady progress towards a more liberal external trade regime in the last two years, under the combined effects of implementation of WTO tariff commitments, the elimination of quotas and voluntary export restraints, new multilateral commitments on information technology products and telecommunications services, and the completion of the single market. The report notes that in an increasing number of areas such as the liberalization of services trade or the harmonization of standards, the single market process and multilateral liberalization have been mutually supportive, resulting in improved market access for non-EU suppliers.
Border protection has declined in the last two years. Average most-favoured-nation tariffs on industrial products have fallen from 6 per cent in 1995 to 4.9 per cent in 1997, and should be under 3 per cent at the turn of the century. In agriculture, average rates, although much higher, were nonetheless reduced from 25 per cent in 1995 to 20.8 per cent in 1997. Fears that the gradual dismantling of voluntary export restraints and quantitative restrictions would translate in increased anti-dumping activity has not materialized as the number of initiations and measures in force stabilized between 1992 and 1996. Nevertheless, import protection and the use of contingency measures remain significant in particular industrial sectors such as textiles, automobile and consumer electronics, where high tariffs may co-exist with intense anti-dumping activity. Agriculture continues to enjoy the protection of high tariffs, with peaks in cereals, meat, dairy and poultry, sugar and tobacco.
The report notes that, as protection at the border is gradually reduced, internal obstacles to competitiveness and efficient allocation of resources become more apparent. Government assistance to the EU economy remains sizable by international standards, in the order of ECU 100 billion a year for State aid provided by the Member States, in addition to other investment incentives and grants provided by local authorities, and Community subsidy programmes. The opening of public procurement, which accounts for 12 per cent of the Union's GDP, has so far had limited effect on external suppliers.
Despite some recent liberalization, insufficient competition in certain service markets maintains high costs for consumers and user industries. As stressed in the report, the removal of restrictions to trade in services, both within the single market and externally, has become a key policy objective of the Community. This is reflected in recent progress made in the areas of financial services, telecommunications and air transport. The speed of reform is conditioned both by internal political factors and by the speed of external negotiations. However, the EU's approach has been steady and determined.
The report highlights that, so far, manufacturing has benefited most from continued reductions in tariff and non tariff barriers. WTO implementation in textiles and clothing, the introduction of the Information Technology Agreement and single market measures reinforce this trend. Conversely, sectors remaining sheltered from world competition by combinations of high tariffs, State aid and market fragmentation experience structural weaknesses and difficulties to adapt to new market trends, technologies and demand. Concerns have also arisen within the EU about the need to escape from excessive specialization in medium-technology products.
In agriculture, favourable market trends have aided implementation of Common Agricultural Policy reform and fulfilment of WTO commitments. Average tariffs have fallen but high out-of-quota duties continue to protect sensitive products. While financial transfers to agriculture have continued to grow, they now take a smaller share of the EU budget; increasingly, assistance is taking the form of direct payments. Future enlargement to central and eastern European countries, covered by the recent Commission's Agenda 2000 proposals, seems likely to impose further limitations on farm subsidies. Future plans emphasize the adoption of more market-oriented measures with less reliance on price support mechanisms and export subsidies, reduction in intervention and a further shift toward direct income support.
The WTO report emphasizes that the review is taking place in a period of policy development in the European Union. Major changes are in preparation, such as the movement towards economic and monetary union, further enlargement, and additional reforms in key sectors such as services and agriculture. These factors, together with the perspective of continuing negotiations under the "built-in agenda" of the WTO, are likely to maintain pressure for further economic and trade reforms.
The introduction of the euro will be a major factor governing the EU's external trading relations in the coming years. Elimination of exchange risks within the euro zone should have direct benefits on intra-EU trade; however, both intra- and extra-Community trade should benefit from lower transaction costs, greater transparency of the single market, and further predictability and security of trade.
The enlargement of the Union and the expansion of the EU's preferential network of free-trade agreements, which has continued in the last two years, is bound to give some concern to m.f.n. trading partners in relation to potential trade diversion. There are also concerns about the systemic effect on the multilateral trading system. The report notes that the EU's Council of Ministers has called for a more careful consideration of the WTO conformity of preferential agreements as well as a clarification of WTO rules on regional trading agreements.
The report concludes that the EU's trade policies and practices have generally evolved in a favourable direction. Multilateral rules and disciplines constitute an important and growing point of reference in the elaboration of the EU's policies. Observance of WTO rules and disciplines and the continuation of the Single Market process are generally increasing the openness and predictability of the EU market. This, says the report, should benefit both the EU and its trading partners.
Note to Editors
The WTO Secretariat's report, together with a report prepared by the European Union will be discussed by the WTO Trade Policy Review Body (TPRB) on 25 and 26 November 1997. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of the European Union and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of the European Union's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993 & 1995), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: EUROPEAN
Report by the Secretariat Summary Observations
This review of the European Union's trade policies and practices is an "interim" review, as agreed in 1996 by the Trade Policy Review Body. It therefore focuses principally on a comprehensive survey of developments in trade policy, and in the economy of the EU, since the previous review held in 1995; the coverage of sectors is more selective than in previous reviews, concentrating on significant developments in major areas.
The review takes place in a transitional period of policy development in the Union itself. Major changes are in preparation, such as further enlargement, the movement towards economic and monetary union, and reforms in key sectors such as agriculture and services. Such developments are likely to have a strong, although not yet quantifiable, impact on the Union and the multilateral system; the report is therefore an attempt to visualize the directions of policy movements and assess their potential effects on the system.
The Economic Environment
Economic growth in the EU has, on average, been relatively modest (around 2 per cent) since the 1995 Trade Policy Review, reflecting the impact of the sharp slowdown of mid-1995 to mid-1996. Confidence has strengthened since the second half of 1996, leading to projections of real GDP growth of around 2.5 per cent for 1997. While some Member States (Ireland and Finland) continue to show higher-than-average growth performance, cyclical developments among the larger economies have become more synchronized. Average growth in the Union as a whole has been too weak to allow significant improvement in unemployment, although performance of Member States in this regard varies widely. Fiscal and monetary policies have shown greater convergence, resulting in more stable exchange rates within the European Monetary System.
Exports, stimulated by buoyant world markets, have been the main contributing factor to economic growth. While exports of manufactures have been increasingly oriented towards fast-growing markets in Asia and modern-technology products, concerns remain about the relatively high concentration of EU trade in medium-technology products and towards certain low-growth geographical areas. Trade in services, one of the EU's strongholds, has continued to benefit from international liberalization, technical progress and strong demand for technology-based services.
Preparations for the introduction of a single currency (the euro) have intensified, driving the conduct of macroeconomic policies in most Member States. The planned introduction of the euro represents a new step in economic integration within the EU and is also likely to be a major factor governing the EU's external trading relations in the coming years. Elimination of exchange rate risks within the euro zone should have direct benefits on intra-EU trade; however, both intra- and extra-Community trade should benefit from lower transactions costs, greater transparency of the single market, and further predictability and security of trade.
Recent Developments in Trade Policies
At the time of the previous review, the completion of the single market programme and the conclusion of the Uruguay Round dominated the EU's agenda. In the last two years, priorities have shifted towards preparations for the introduction of the euro and the reform of Community institutions in view of future enlargement. At the European Council in Amsterdam, the Heads of State or Government agreed, inter alia, on a revision of Article 113 of the Treaty of Rome, opening the door (subject to unanimous agreement by the Council) to possible extension of the Commission's exclusive competence to conclude international agreements for certain types of services and intellectual property.
The basic objectives of the EU's trade policy have not changed substantially. Internally, the Community has focused on consolidation of the single market rather than on developing new policy directions. Attention is being paid to the depth and scope of transposition of EU legislation into national laws, and to enforcement in areas such as government procurement, environment and intellectual property.
Externally, the EU is maintaining its multi-stranded approach, combining bilateral, regional and multilateral policies. Bilateral priorities include the strengthening of economic links with neighbouring countries through the acceleration of the pre-accession strategy for Central and Eastern European countries (CEECs) and the Baltic States, and the conclusion of a new generation of association agreements with Mediterranean countries, progressively introducing reciprocal free trade. The CEEC accession process has been taken a step further by a recent Commission proposal ("Agenda 2000") to admit to membership Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia. "Agenda 2000" also provides a first evaluation of the consequences of enlargement for the EU and the selected countries, and calls for further reforms in various areas of policies such as agriculture, structural funds and the Community budget.
Other initiatives included the completion of the mid-term review of the fourth (and last) Lomé Convention and the initiation of discussion to determine the structure of post-Lomé arrangements; new frameworks for relations with North America, MERCOSUR or Asia; negotiations on trade liberalization with Mexico, Chile and South Africa; the conclusion of new Partnership and Cooperation agreements with former Soviet Union (FSU) countries; and progress towards the removal of non-tariff barriers in bilateral trade with the United States, in the context of the New Transatlantic Dialogue.
These measures, strengthening European integration both in the Single Market and through the network of regional and bilateral agreements, are likely to have increasingly significant effects on outsiders, and on the multilateral system as a whole, not only through such steps as the extension of duty-free access on an FTA basis, and accelerated quota liberalization for textiles and clothing products from preferred sources, but also through the adoption of the EU trading regime by its partners and their participation in new systems of "diagonal" cumulation of origin. Already, in the period 1985-95, the share of intra-EU trade in manufactures rose from 54 to 68 per cent of total exports from the Community as the Single Market advanced; in the same period, intra-EU flows rose from 41 to 59 per cent of total Community FDI.
At the same time, however, the Union engaged firmly in the process of Uruguay Round implementation and promoted the use of WTO dispute settlement procedures. It also made an important contribution to the success of the Singapore Ministerial Conference and was at the forefront of recent GATS and ITA negotiations. Multilateralism is thus firmly embedded in the EU's political agenda.
Trade Policy by Instruments
By and large, the last two years have confirmed the EU's steady progress towards a more liberal external trade regime, under the combined effects of WTO implementation in areas such as tariff reductions or the gradual elimination of non-tariff barriers, enlarged m.f.n. commitments through the ITA and the new agreement on telecommunications services, and the completion of the Single Market. In an increasing number of topics, such as the harmonization of standards or the liberalization of services, the single market process and multilateral liberalization have been mutually supportive, resulting in market access improvement for non-EU suppliers. On the other hand, in areas such as government procurement, the lack of implementation of single market directives may have adverse consequences on external suppliers.
While many of the EU's trading partners benefit from free-trade area or other preferential treatment, most imports still enter at m.f.n. rates. The United States and Japan are still the most important trading partners, supplying some 20 and 9 per cent of external imports in 1996.
In 1997, the simple average m.f.n. tariff across all products stood at 10 per cent. Reflecting Uruguay Round commitments, average m.f.n. tariffs on industrial products have continued to decline, from 6 per cent in 1995 to 4.9 per cent in 1997. Some high duties persist in the textiles, automobile and consumer electronics sectors. Further tariff reductions, as part of the Uruguay Round and the ITA, will result in an average m.f.n. industrial tariff of under 3 per cent by the turn of the century.
As a result of the WTO Agreement, all EU agricultural tariffs are bound, against two-thirds previously. As in many WTO Members, reflecting the tariffication of previous variable levies and import restrictions under the Agreement on Agriculture, average rates are higher than for industrial products; the simple average m.f.n. tariff for agricultural products was estimated at 20.8 per cent in 1997, down from 25 per cent in 1995. The tariff profile shows peaks for cereals, meat and meat products, dairy and poultry, sugar and tobacco products.
Under the Single Market, access conditions have improved for a variety of "sensitive" products. Trade restrictions previously maintained by Member States have been abolished or, in a few cases (the banana regime, the "car consensus" with Japan and certain restrictions on products from non-WTO Members) converted into Community-wide quotas. Most of these restrictions are scheduled to lapse at the turn of the century, or shortly thereafter, as a result of WTO Agreements or under bilateral arrangements. Progress has been recorded in the last two years with the removal of most grey-area measures (except on cars) and the integration into the GATT of a second list of textiles and clothing items.
Fears that the gradual dismantling of voluntary export restraints (VERs) would translate into a sharp increase in anti-dumping measures have not been confirmed. The use of contingency measures stabilized between 1992 and mid-1996. However, the EU remains the second most important user of anti-dumping procedures. While the last two years have seen an increase in the number of measures in force, affecting in particular textile products, the number of initiations has diminished. Other trade-defence instruments available under WTO provisions, e.g., safeguards and countervailing actions, are being used only marginally.
In 1996, the EU introduced a "Market Access Strategy" aimed at achieving better access to third-country markets through a more focused, systematic and coordinated use of available trade instruments. According to the Commission, the strategy is not intended to create new trade instruments or jeopardize the Union's obligations under the WTO. To date, the main concrete step has been the creation of a database compiling information on existing "obstacles" outside the EU. The Commission intends to prepare reports identifying priority countries and listing their trade barriers.
Recent changes in rules of origin are related to the harmonization of these rules among European countries and the creation of a single territory for the determination of origin between the EEA, EFTA and CEEC countries (in all, 28 countries). The new system is likely to encourage the further development of outward processing and assembly operations within the enlarged region, in particular in the textiles, clothing and automobile industries.
Efforts towards the harmonization of standards and technical requirements in the Single Market, which have intensified in the last two years, have been mirrored at the international level by the conclusion of mutual recognition agreements (MRAs) with the United States, Australia, Canada and New Zealand.
Measures affecting production and trade
As traditional protection at the border is gradually reduced, internal obstacles to trade, resource allocation and competitiveness become more apparent. Government assistance to EU economies remains sizable, in the order of ECU 100 billion a year for State aid provided by the Member States, in addition to other forms of investment incentives and grants provided by local authorities, and Community subsidy programmes. The opening of public procurement (which accounts for 12 per cent of the Union's GDP), while benefiting from an improved EU and international framework, has so far had limited effect; and despite gradual liberalization, the survival of monopolistic structures in certain service markets maintains high costs for user industries and consumers. Many of these issues are being addressed through an active competition policy.
The Commission continues to review and monitor State aid in the Community. The complex and differentiated system reflects the large number and wide variety of aid programmes available. The EU authorities have been seeking to narrow the scope of sector-specific exemptions in areas such as steel, textiles and services. There was an increase in State aid granted in 1992-94 over 1990-92; more recent statistics are not yet available.
The WTO Government Procurement Agreement (GPA) became part of the EU regime on its entry into force. The Union has undertaken to align certain directives to the GPA to ensure coherence and simplify implementation. While the single market legislative framework in the field of government procurement is now in place, not all directives have yet been fully transposed into national laws and their economic impact has, to date, been relatively minor.
The last two years have seen rapid development in the number of competition policy cases, reflecting the rise of cross-border mergers, acquisitions and strategic alliances both within the EU and at the international level. These pose new challenges for competition authorities, and the Union has therefore been seeking to adapt its own framework and to develop international cooperation. Bilateral negotiations between the EU and the United States to deepen the 1991 Agreement on Cooperation in Competition Policy led in 1997 to an agreement strengthening the application of the "positive comity" principle in enforcement of their respective competition laws. The EU has continued to argue in favour of the development of a competition policy framework at the multilateral level, and is strongly supporting the WTO work programme clarifying the connection between trade and competition policy.
Trade Policy by Sectors
The period has been one of implementation of WTO Agreements and of deepening of the Single Market, not of major regulatory change. Generally, internal and external processes are contributing to creating a more open, competitive marketplace. However, the Single Market is yet far from being completed, albeit more advanced in industry than in services.
In agriculture, favourable market prices have facilitated the implementation of CAP reform and fulfilment of WTO commitments, gradually increasing the sector's exposure to competition. Average tariffs have fallen, but high out-of-quota duties continue to protect sensitive areas. Aspects of tariff quota administration, the use of special safeguards and export subsidies have been of concern to other WTO Members. As a result of reduced intervention prices and international price trends, mainly linked to changes in the cereals and sheepmeat sectors, in 1996 there was an 8.7 per cent reduction in the producer subsidy equivalent (PSE) of support and a one-third reduction in the consumer subsidy equivalent (CSE). Financial transfers to agriculture have continued to grow but take a smaller share of the EU budget. Changes have also taken place in the manner in which assistance is provided, with a movement towards direct payments. Farm incomes have continued to rise, in particular for producers of cereals and meat other than beef, helped by high world prices and the changing patterns of farm support.
Budgetary considerations, in particular the impact of future enlargement to Central and Eastern European countries, seem likely to impose further constraints on farm subsidies. Measures to address these concerns and prepare for the second phase of negotiations under the WTO Agreement on Agriculture are contained in the Commission's "Agenda 2000" proposals, which emphasize the adoption of more market-oriented measures, with less reliance on price support mechanisms and export subsidies, reduction in intervention, and a further shift to direct income support.
In general, manufacturing has benefited from continued reductions of tariff and non-tariff barriers. WTO implementation in textiles and clothing, the introduction of the ITA, and single market measures, are reinforcing this trend and increasing the exposure of protected industries to international competition.
Nevertheless, structural weaknesses remain in key sectors such as automobiles or certain segments of the electronics industry. Surveys point to insufficient product and geographical specialization, declines in market shares and a certain loss of technological advantages. In these industries, the persistence of a combination of high tariffs, State aid and market fragmentation may have retarded adaptation to new market trends, demands and technologies.
Conscious of the need to reduce costs in input services, the EU has made the removal of restrictions to trade in services a major policy objective. The approach has been steady and determined, but the speed of the reform has necessarily been conditioned by political factors. In the last two years the Community has continued to progress towards liberalization in some key services areas, for example through preparations for full liberalization of the internal market in air transport and, particularly, telecommunications. This internal impetus has been backed by a consistent approach to multilateral negotiations; in general, the EU has been a driving force behind recent GATS negotiations, making substantial offers or commitments and devoting considerable energy to the encouragement of other participants to do likewise.
The Community and its Member States have also undertaken to open up certain "core" public services such as electricity, gas and postal services, although in some instances with long transition periods. In such areas, the need is often seen to maintain a balance between market opening and the provision of assured public services. Thus, in telecommunications liberalization, the EU authorities have paid particular attention to the definition of a universal service at an affordable price.
Import protection, other forms of assistance and the use of contingency measures remain of importance in certain sectors. However, as a result of the combined effects of the single market process and the implementation of the WTO Agreements, the EU's trade policies and practices have generally evolved in a favourable direction. The near elimination of VERs and reduced reliance on tariff and non-tariff measures, combined with the observance of WTO rules and disciplines, are increasing the openness and predictability of the market. These tendencies provide encouraging evidence that the multilateral framework of rules and disciplines constitutes an important - and growing- point of reference in the elaboration of the Union's policies.
The Single Market process has stimulated internal competition, sometimes with benefits for third-country suppliers. The introduction of the single currency, budgetary limits, the prospect of further enlargement, and international negotiations or new agreements in key economic sectors such as financial services are likely to maintain pressures for further economic and trade reforms.
The enlargement of the Union and the expansion of the EU's preferential network of free-trade agreements are bound to give some concern to m.f.n. trading partners in relation to potential trade diversion. There are also concerns about the systemic effects in the WTO. At the same time, it is clear that the EU is reassessing in depth both the pattern of its free-trade area relationships and their relationships with the WTO Agreements and with m.f.n. partners. Indeed, the multiplicity of forms of economic cooperation and levels of trade preference has led the Council of Ministers to call for more careful consideration of the WTO conformity of preferential agreements as well as clarification of WTO rules on regional trading agreements.
Overall, the interface between the single market process and existing or new WTO commitments appear to be working together to the benefit of both the Union and its trading partners, and this can be usefully carried forward. At the same time, there are also lessons to be drawn for the development of the multilateral system from the process of European integration and the evolution of its disciplines and structures.Back to top
TRADE POLICY REVIEW BODY: EUROPEAN
Report by the Government
This is the first interim review of the EU's trade policy under the revised TPRM arrangements.
Since the last Trade Policy Review of the EU, there has been a good deal of debate, within the EU, on questions related to economic growth, job creation and international competitiveness. This debate, related to the globalisation of the world economy, has remained high on the public agenda, as competition in a global economy has been viewed from different perspectives by different sections of society.
This is an important back-drop for the WTO's trade policy review process. Like all areas of economic policy, trade policy is a means to the end of providing for the economic prosperity of individuals and society, and providing the economic underpinning for whatever level of social provision societies consider to be appropriate. Public authorities have sought to highlight the benefits of greater world-wide integration by pointing out that, already, extra-EU exports directly account for 9% of EU GDP and 10% of employment (roughly the GDP of the Netherlands, Austria, Finland and Portugal).
For the EU, and for European Governments, this debate has been an important feature of both internal and external economic policy over the past two years. At the same time, the EU has been engaged in dealing with the consequences of its most recent enlargement, in further preparation for future enlargement and the introduction of the Euro, and in the consolidation of many aspects of its external economic relations. In each of these areas of activity, our approach has reflected a fundamental commitment to an open and dynamic market economy supporting appropriate levels of social provision and protection, as well as sustainable development.
The open multilateral trading system principally embodied in the WTO Agreement is a central anchor for the external dimensions of this wider agenda. The WTO's system of rules, market access commitments, enforcement through the dispute settlement system and its commitment to future negotiations and liberalisation through the built-in agenda provides an external framework for agreement and implementation of the right economic policies in a similar way as our own internal market programme provides a system of rules, a means of enforcement and of course a continuous framework for the further development of the EU's internal market. The EU remains committed to the fundamental WTO objective of progressive multilateral liberalisation based on the non-discrimination principle.
Key developments in the EU since the last review
This wider perspective has been reflected in the following key developments over the past two years:-
(a) The economic and trade impact of enlargement of the EU to include Sweden, Finland and Austria from 1 January 1995. This was significant both for the EU internally - as three substantial economies became fully integrated into the single market - as well as changing the EU's external profile in the WTO. In particular, the three new Member States adopted the Community's common commercial tariff from the outset, and the Article XXIV.6 compensation process provided by GATT 1994 was rapidly and satisfactorily concluded in full compliance with WTO rules.
(b) At the end of 1995, the final stage of the customs union with Turkey entered into force. This was a significant achievement, bringing to fruition an ambition shared by the EU and Turkey since the early 1960s. A number of limited transitional arrangements remain in force for some industrial products, and the pace of agricultural liberalisation, while slower, is nevertheless significant.
(c) More widely, the process of working together with partners in Central and Eastern Europe for whom accession to the EU is a shared vocation has developed over the past two years into a wide ranging and comprehensive process of co-operation, technical assistance and real economic integration, building on the Europe Agreements the EU has with each of the ten countries concerned.
Most recently, the Commission has delivered its opinions on the accession applications from the ten Central and Eastern European applicants. The Commission recommended opening negotiations with Poland, the Czech Republic, Hungary, Slovenia and Estonia. For Romania, Slovakia, Latvia, Lithuania and Bulgaria, the Commission considers that negotiations should open as soon as they satisfy the conditions defined by the Copenhagen European Council. The European Council at its December meeting in Luxembourg is expected to take the necessary decisions on the overall enlargement process.
The Commission's opinions formed part of Agenda 2000 which sets out the Commission's views of the development of the European Union both for further enlargement and for the challenges for the EU of the 21st century. These proposals, currently under consideration within the EU, are intended to provide for a new, outward looking and open agenda based on the aims of enlargement of the EU and substantive policy reform in key areas. This includes proposals for reform in agriculture, regional development funding and budgetary arrangements for the period 2000-2006.
Within the EU, the process of consolidating the interface between the internal market and the WTO system has continued. In 1995 and 1996 the EU has put in place the Customs 2000 project, aimed at consolidating the EU's institutional machinery in the World Customs Organisation and the WTO, as well as providing appropriate institutional and technical underpinning for co-operation between the Commission and the administrations in Member States in the full range of customs procedures.
The Single Market
At the end of 1996, the first full review of the operation of the single market was completed by the Commission. The result has shown that the single market programme has been effective in providing for the integration of EU economies. At the same time, it has also highlighted a number of areas where further work needs to be undertaken to ensure that the full benefit of the single market programme is realised. This has been reflected in a Action Plan on the single market adopted by the Amsterdam European Council in June 1997. Encouragingly for the TPRM process, the single market review also showed that third country suppliers of goods, services and investment to the EU had benefited from the single market programme just as much as people and companies within the EU.
Within the internal market, there have also been important developments in economic policy. The adoption in 1994 of the White Paper entitled "Growth, Competitiveness, and Employment: the challenges and ways forward into the 21st century" has formed the centre piece for subsequent policy thinking on a range of micro-economic questions.
Preparations have continued for the introduction of the Euro as provided in the Maastricht Treaty. This process has played an important role in shaping macro-economic policies within the EU, and in helping the wider process of economic and economic policy convergence to continue to evolve.
The EU and WTO
Within the context of the WTO, while the Singapore Ministerial Conference, the conclusion of the ITA and the basic Telecommunications Agreement have all provided highlights over the past two years it is important to remember that the process of implementing the Uruguay Round results has also been a major feature of EU activity through this period. The task has been complicated by the fact that implementation has coincided with enlargement, and with the implementation of reforms to the EU's Common Agricultural Policy.
At the same time, new measures to tackle market access barriers in third countries have been put in place as a result of the adoption of a new market access strategy and a related Regulation on trade barriers. The market access strategy adopted by the EU Council of Ministers is explicitly intended to provide a clear and effective articulation between the Community's multilateral agenda, and its approach to bilateral market access questions with trading partners within the wider WTO framework. These initiatives need to be seen in the context of the EU's fundamental commitment to the WTO's dispute settlement system and the EU's profound disquiet at the use of unilateral coercion to settle trade disputes.
The EU has continued to play an active part in the work of the WTO's Dispute Settlement Body (DSB). The EU sees the sharp increase in the number of cases brought into the WTO system as a sign that the dispute settlement system has fulfilled Members' expectations of providing an effective means of addressing trade disputes. This is a significant contribution to trade liberalisation and the implementation of Uruguay Round commitments. At the same time, a significant number of cases brought to the dispute settlement system have been amicably settled at some stage during the procedure. This is a positive development, indicating that members have not lost sight of the aim of the dispute settlement mechanism of finding solutions mutually acceptable to the partners and consistent with the covered agreements, suggesting that the improvements to the dispute settlement system agreed at the end of the Uruguay Round have achieved their objective. The EU is fundamentally committed to underpinning and enhancing both the effectiveness and the credibility of the dispute settlement mechanism.
All of these developments formed the background to the Community's preparation for the WTO's Ministerial Conference in Singapore in December 1996. In addition to its approach to market access questions, the EU also adopted policies related to trade and environment, investment and competition, and laid the internal foundation for the successful negotiation at Singapore of the Information Technology Agreement.
On investment, the EU sees it as right for the WTO Group on investment to widen the compass of analysis already undertaken in the context of the Multilateral Agreement on Investment context in recent years. Getting the conditions right for foreign investment will be an important foundation for the further integration of the world economy and for the development of trade in years to come.
On environment, the EU had ambitious goals for the WTO's Committee on Trade and Environment (CTE) in the run-up to the Singapore Conference. Unfortunately, the sort of wide-ranging progress the EU had hoped to make on this issue did not prove possible. Nevertheless, the EU remains committed to taking this issue forward in the WTO and other multilateral fora in years to come. The EU is convinced that the issue is a central aspect of the wider goal of Sustainable Development.
On competition, the EU considers it to be important to develop the work of the WTO group on this issue established as a result of the Singapore Conference, to consider the extent to which conditions of competition are able to underpin effective market access in an increasingly integrated world economy.
On trade and labour standards, the EU believes that economic growth and development fostered by increased trade liberalisation contribute to the promotion of core labour standards. The EU rejects the use of labour standards for protectionist purposes, and agrees that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. As agreed in Singapore, work to promote core labour standards must continue.
The ITA agreed at Singapore and now in force was supported by the EU since its inception. The first tariff cuts have now taken place. Thanks to the ITA, industry will be assured of unrestricted access to IT equipment - not only for those who use electronic components to manufacture but also those in non IT industries or the service sector which, to remain competitive, need access to state-of-the-art informatics systems and software and globally competitive prices. The IT industry can accelerate its evolution towards global production on a more rational basis knowing that tariffs (which act as internal taxes) are eliminated. Looking beyond the results already achieved, the EU hopes that other countries will join the ITA. The EU is also contributing actively to the review of the Agreement's product coverage and other issues, as foreseen in the Annex to the Singapore declaration on Trade in Information Technology Products.
The conclusion of the WTO Agreement on Basic Telecommunications in 1997 was also an important extension of international rules and market opening for the EU. The EU's own process of internal liberalisation in its telecommunication market is far advanced and will be completed on 1 January 1998, the same date as the entry into force of the WTO Agreement. We will be in a position by the agreed date to confirm that, as foreseen in the fourth protocol, all commitments made are implemented into the corresponding internal regulations.
At Singapore, the EU supported efforts to take forward the Action Plan in respect of LLDCs aimed at using a High Level Meeting on LLDC assistance in Geneva at the end of October as a focus for further efforts to better integrate the least developed countries into the world economy and into the multilateral trading system. The EU has decided on ways to improve access to its own markets for LLDC products in the context of its GSP scheme, and the EU is now looking ahead to consider how best to develop its market access arrangements with ACP partners after the present Lomé Convention expires in 2000. The EU remains concerned that the least developed countries have not enjoyed the full benefits of the introduction of the WTO agreement and have become increasingly marginalised within the world economy. This is a situation the EU will continue to address as a priority in future work, ensuring that measures to further the integration of least developed countries remains high on the WTO's agenda. Better coordination of trade related technical assistance, and simplified origin rules are among possible means to alleviate these problems, as would be a broader commitment amongst WTO members to work towards reducing tariffs on LLDC products, comparable to those granted already by the EU. As a practical measure to improve market access for LLDC's, the EU will be offering a level access equivalent to Lomé to all LLDC's by 1 January 1998.
The EU has taken a forward looking position in work now under way in the WTO in fields such as trade facilitation, international standards and practices under the Technical Barriers to Trade Agreement, rules of origin and in the deliberations of the TRIPS council.
EU policy on regional preferential trade agreements has continued to evolve, following the establishment of the WTO's Committee on Regional Trade Agreements at the beginning of 1996. Recognising the need to ensure that regional policies are fully compatible with, and support the multilateral trading system, the EU is a firm supporter of the work of the CRTA, including its systemic work considering the interaction of regional preferential trade agreements and the rights and obligations contained within the WTO agreements, including the question whether these rights and obligations should be clarified. In respect of its own preferential agreements, the EU has adopted clear guidelines which give priority to existing commitments and mandates, on the basis of which the EU will continue to negotiate a number of further preferential agreements in the future. The EU's guidelines also ensure that any new proposals for preferential agreements are measured against a list of indicative criteria, allowing them to be subject to careful, consistent consideration on a case-by-case basis, in the light of multilateral obligations.
The EU has also put a good deal of effort into the development of important regional dialogues on trade policy issues with the United States and Canada, as well as with Asian, Mediterranean and Latin American partners. Relations with the US and Canada have been marked by the launch in 1995 of the New Transatlantic Agenda (NTA) with the US, and the signature of the EU-Canada Joint Declaration and Action Plan in December 1996. These arrangements have provided the foundation for a new period of closer co-operation between the EU and the US and Canada, enabling foreign policy, global and other economic concerns to be addressed in an effective manner.
So far as the US is concerned, the NTA reaffirms the shared commitment of the EU and the US to strengthening the multilateral trading system, and has been instrumental in laying the foundation for the ITA and the WTO Basic Telecommunications Agreement. Without prejudice to this commitment, in the related New Transatlantic Market-place process, the EU and US are working to identify and reduce barriers to trade and investment, often in response to initiatives from business. The recent Agreement on Mutual Recognition of Conformity Assessment is a good example of this effort. Similarly with Canada, the Action Plan has borne early fruit with agreements on Mutual Recognition of Conformity Assessment, Customs Co-operation and Mutual Assistance. Talks have also been completed on agreements on co-operation in competition matters and veterinary equivalence.
With Asian partners, the growing importance for the EU and the entire Asian region has been demonstrated by the creation in 1996 of the Asia-Europe Meeting (ASEM) as a permanent forum for discussion on political and economic issues. In the trade field, ASEM aims to improve economic and investment opportunities for both partners through mechanisms such as a recently adopted Investment Promotion Action Plan, a Trade Facilitation Action Plan, and an initiative on customs cooperation.EU-ASEAN links have also been strengthened through Ministerial agreement in 1997 on a programme to create a "new dynamic" in EU-ASEAN relations in several fields including the economic.
The importance of Latin America for the EU is also growing. Trade between the two regions has significantly increased during the last few years. A EU-MERCOSUR framework co-operation agreement was concluded in December 1995. A similar agreement was concluded with Chile in June 1996, while an economic and co-operation agreement between the EU and Mexico was initialled in July 1997. These agreements provide for enhanced cooperation across a wide range of political, economic and commercial activities. During the period under review, a new generation of bilateral Euro-Mediterranean agreements were also concluded between the Community and a number of its partners in the Mediterranean region. These agreements provide for trade liberalisation within a comprehensive framework of political and economic cooperation, and represent the first step towards the achievement of a future Euro-Mediterranean free trade zone.
The EU remains committed to improving the Government Procurement Agreement and to extending both its membership and coverage. Furthermore the EU has played an active part in the work of a group to study transparency in government procurement procedures, as well as in work on procurement of services. Looking to the future, the EU sees government procurement as a significant area for further liberalisation within the wider global economy, building on the work now under way.
Future policy directions
Looking ahead, a key part of the EU's approach to external commercial policy remains its commitment to further multilateral liberalisation focused on the WTO system. This is - and will continue to be - reflected in several ways:
(a) the EU is committed to the framework for further liberalisation already established as a result of decisions taken at the time the WTO was set up (the so-called built-in agenda) in respect of the additional decisions taken at Singapore to include aspects of investment, competition and government procurement in the WTO's work programme, the EU is clearly committed to the time-tables agreed for addressing these issues, and looks forward to taking an active and constructive part in that process. Equally, the EU intends to contribute positively and actively to further initiatives to review the scope and coverage of the ITA;
(b) to further the agenda of trade facilitation (including standards and regulatory issues, origin questions, customs procedures, and electronic commerce);
(c) to continue to play a full role in the accession of new members to the WTO in full compliance with WTO rules and on the basis of meaningful market access commitments;
(d) and to ensure that traditional market access issues remain in the forefront of the WTO's future work.
For the EU, a shared political commitment to the successful conclusion of these negotiations and full implementation of the negotiated commitments is the main objective. The WTO system and the multilateral trading system more widely will only continue to develop if it enjoys the wholehearted support of WTO members both in their dealings with each other and in their explanation of the real, longer-term benefits of trade liberalisation to their respective domestic political constituencies. Governments should not gloss over the real challenges and difficulties which can accompany economic change, but at the same time they should not allow debate on trade questions to be conducted in a fragmented manner or on a sectoral basis not providing a clear view of the global and mutual benefits that flow from comprehensive and broad liberalisation.
The accessions process, the built-in agenda and the WTO's work programme provide together an unparalleled opportunity for further liberalization and wider participation by all countries in the global economy. The EU sees a clear need to tackle this task in a comprehensive, global way. Although much has been achieved since the establishment of the WTO through the ITA and the telecommunications negotiations, as well as current work on financial services and other issues, there is ultimately a limit to the progress which can be made on an ad hoc or sectoral basis. Difficult market access and rule-making challenges are best addressed globally, enabling all participants to take the widest possible view of their economic and other interest. Seizing this opportunity will be the first task for the WTO's members in the new millennium. Back to top
Footnote: 1 This review of the European Union's trade policies and practices is an "interim review", as agreed in 1996 by the Trade Policy Review Body. It therefore focuses principally on a comprehensive survey of developments in trade policy, and in the economy of the EU, since the previous review held in 1995; the coverage of sectors is more selective than in previous review, concentrating on significant development in major areas. However, while "interim", the review is of importance since it is the first of policy developments in the EU since the creation of the WTO.