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European Union: November 1997

“ The single market and external liberalization had been mutually supportive, resulting in improved market access for external suppliers and increased exposure of the EU economy to competition.For example, aspects of the EU's participation in recent multilateral services negotiations drew on internal reforms.

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First press release
Summary of Secretariat report
  > Summary of Government report

27 November 1997

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The Trade Policy Review Body of the World Trade Organization (WTO) concluded its second review of the European Union's trade policies on 25 and 26 November 1997. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.

The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

A record of the discussions and the Chairperson's summing-up, together with these two reports, 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.

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), Cte d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), 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).

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Over the last two days, the Trade Policy Review Body (TPRB) has conducted the fourth review - the second under WTO provisions - of the European Union's (EU) trade policies and practices. The review of the EU is the first to be conducted under the "interim review" framework agreed in 1996 by the TPRB for two-yearly reviews; as such, it has focused on developments in trade policies in the past two years and on selected sectoral issues, rather than being fully comprehensive in coverage.

The discussion developed under five main themes: (i) the interface between the single market and multilateral liberalization; (ii) the EU's enlargement and network of regional or preferential agreements; (iii) systemic trade policy issues; (iv) sectoral questions; and (v) the EU and the future of the multilateral system.

Participants raised a large number of questions in writing. The representative of the European Union provided written replies in the context of the meeting and undertook to supply further details as necessary.

Members welcomed the statements made by the EU representative concerning its participation in, and commitment to, the WTO-based multilateral trading system. However, many questions were raised on specific aspects of the EU's trade policies and practices as they affect other WTO members. Any actions by the world's largest trading entity were bound to have an important effect on the trading system and this was a major concern of many participants.

The interface between the single market and multilateral liberalization: institutional issues

Members noted with satisfaction that, in a growing number of areas, the single market and external liberalization had been mutually supportive, resulting in improved market access for external suppliers and increased exposure of the EU economy to competition. For example, aspects of the EU's participation in recent multilateral services negotiations drew on internal reforms.

However, Members noted that significant impediments to trade and efficient allocation of resources remained, with potential adverse effects on external suppliers. Members mentioned the high level of State aid and its concentration on relatively few sectors, and limitations in the opening of public procurement. While recognizing that WTO rules were a growing point of reference in the elaboration of EU policies, Members urged that further efforts to ensure that all EU regulations respected the principles of transparency, non-discrimination and were properly notified to the WTO. Some Members posed questions concerning "Community competence" for trade negotiations. Specific concerns were raised about recent moves to strengthen measures regarding health, safety and environmental protection. Some members expressed concern that the share of intra-EU trade in manufactures during the past few years may have increased at the expense of extra-EU trade in manufactures.

In reply, the representative of the European Union emphasised that the internal process of harmonisation could be equated with liberalization. Third country suppliers benefitted fully from measures aimed at eliminating obstacles to intra-Community trade. Increased intra-trade had not been at the expense of non-EU countries; these accounted for a steady 40 per cent of total EU imports and a rising share of domestic demand for manufactures. He provided details of the Action Plan to remove remaining sectoral obstacles to market integration and undertook to supply information on proposals to simplify EU legislation.

The representative stated that the new Article 133 of the Rome Treaty would clarify the question of the Community's competence. He recalled that the Community had exclusive competence in trade in goods, and that there was no "domaine réservé" for member States in services and TRIPS.

EU enlargement and network of preferential agreements

Members noted the proposals for further enlargement of the EU and the continued expansion of its network of regional and other preferential agreements. They questioned the effects of these arrangements on third countries' trade. Concerns were expressed in relation to potential trade diversion; in this respect, members mentioned tariff and non-tariff barriers with respect to sectors such as textiles, agriculture and automobiles. Members stressed that regional integration should remain consistent with relevant WTO rules. In this connection, one discussant raised the need to ensure that WTO rules are adequate to deal with the growth and new structure of preferential and regional agreements. Members took note of the recent call by EU Ministers for more careful consideration of the WTO conformity of preferential agreements, as well as clarification of WTO rules on regional trading arrangements. Questions were also posed concerning the harmonization of, and cumulation provisions in, the EU's preferential rules of origin.

While some Members reported that they had satisfactorily concluded Article XXIV:6 negotiations with the EU on compensation following the accession of Austria, Finland and Sweden to the Community, other Members said that negotiations had not yet been completed and called for a rapid conclusion. One Member emphasized that, in future enlargement, negotiations should be undertaken in advance.

A number of participants expressed systemic concerns about certain new aspects of the EU's GSP scheme, in particular eligibility criteria relating benefits to environmental protection or labour conditions, concern about linkage with the fight against drugs was also raised. These aspects went against the fundamental principles of the GSP. Clarification was also sought on the criteria for sector or country graduation.

The representative of the European Union replied that there was no contradiction between the WTO objective of progressive multilateral liberalization, and preferential agreements. He stressed that free trade was only one component of the EU's agreements which covered such aspects as democracy, economic cooperation, political and security relations, approximation of laws, migration, financial assistance for structural reforms, etc. The EU had been careful to ensure the consistency of its agreements with the WTO. He gave details of recent and current negotiations on preferential agreements, as well as partnership and cooperation agreements. He also gave some details of Article XXIV:6 negotiations, and noted that these did not have to be completed prior to enlargement.

The EU recognized that varying rules of origin could create problems for traders and customs authorities. Uniform origin rules, including "diagonal cumulation", had therefore been introduced in the Europe Agreements and the same rules were proposed for the "new generation" of Mediterranean Agreements. The EU's rules of origin were seen as consistent with WTO Agreements.

The EU GSP scheme, although autonomous and not creating absolute rights, was the most comprehensive in the world. It encouraged the introduction of policies for the protection of workers' rights and the environment. The special incentive scheme was a voluntary scheme to support the efforts of countries to combat the drugs trade, or to introduce forward-looking environmental or social policies.

Systemic trade policy issues

In general, Members acknowledged the EU's steady progress towards a more liberal trade régime in the last two years, in particular through the implementation of WTO tariff commitments and the phasing out of quotas and voluntary export restraints. They recognized that the EU had played a key role in the negotiations on basic telecommunications and information technology products and was a driving force behind current negotiations in financial services.

However, Members noted that import protection, various forms of assistance and the use of contingency measures remained of importance in sensitive sectors, some of particular interest to developing countries. While average industrial tariffs were now below 5 per cent and should be under 3 per cent in 2000, significant peaks remained in textiles and clothing, automobiles, and certain consumer electronics. In agriculture, very high rates still affected important products such as cereals, meat, dairy products, poultry, sugar and tobacco. In addition, the EU's tariff structure continued to display some degree of escalation. The trade-restricting impact of tariff reclassification was also raised.

A number of participants regretted the high incidence of anti-dumping, the concentration of recent actions on textile products and the use of anti-circumvention provisions; the combination of high tariff protection and quota limitations for textiles with intensive use of anti-dumping actions added further uncertainty in access to an already protected market. Questions were posed as to the compatibility of certain provisions of the EU anti-dumping legislation with the relevant WTO Agreement.

Members stressed the growing impact of "internal" measures, such as State aid, on external trade and stressed the need for stricter subsidy disciplines on the Member States. Concerns were expressed about the low level of opening of public procurement markets and compliance with the Government Procurement Agreements. Members also emphasized that EU health, safety and environmental directives should not constitute unnecessary obstacles to trade. In this respect, some participants raised systemic concerns about the "zero risk" approach apparently contained in certain trade prohibitions, affecting both EU and non-EU Members, including those concerning meat and related animal products deemed to carry BSE agents, and new measures on "specified risk materials" to be introduced on 1 January 1998. Other Members sought greater transparency in the management of the EU Eco-Label scheme.

The representative of the European Union provided details on its tariff nomenclature as well as tariff and customs administration and associated national and Community judicial processes. He also gave extensive replies to questions on the EU's anti-dumping rules and procedures. These, he said, were intended to restore fair trade and were in conformity with the WTO; the number of initiations was, moreover, diminishing. He asserted that procedures were open and transparent, and that there was no specific "targeting" of sectors or exporters. While special regard was given to developing countries, the Commission could only accept constructive solutions which remedied injurious dumping. On intra-Community trade, anti-dumping actions were excluded in the integrated market; instead, competition rules were enforced to deal with such issues as predatory pricing. The "anti-absorption" clause allowed the re-assessment of export prices or "normal values" in cases where price movements to remove injury had not taken place. The "lesser duty" rule was used systematically and had often moderated anti-dumping duty levels. The WTO recognized the need to counter deliberate circumvention of anti-dumping measures.

The representative emphasised that the EU had notified its state aids to the WTO. He appreciated the recognition of its efforts to provide transparency at Community, national and sub-national levels, and provided details on the operation of structural funds, including in specific sectors. State aids should be used with restraint and be transparent. Surveys had shown a long-term reduction in their use in the EU, and the EU believed this trend must continue.

The representative also provided information on the operation of EU competition policy, its Market Access Strategy Database, the application of its Trade Barriers Regulation to Brazilian "conhaque", and the EU's export promotion programme. Responses were also given on environmental standards and eco-labelling; the latter scheme was non-discriminatory and steps were being taken to take account of the interests of all producers. Metric-only labelling was in keeping with ISO standards and was intended to simplify procedures. He clarified that the MRA between the EU and the United States contained no rule-of-origin provisions. The intention was to extend the scope of MRAs to other suppliers.

The representative emphasized the EU's reliance on strong and secure intellectual and industrial property rights. He gave examples of legislation in force or under consideration and replied to specific questions in such fields as electronic commerce, protection of data bases and national treatment. The Government Procurement Agreement (GPA) had the full effect of Community law. By July 1996 140 out of 155 national measures implementing EU directives had been notified to the EC. The absence of harmonization did not necessarily imply divergence from EU rules or GPA requirements, for example where they were already compatible. Contracts below EC and GPA thresholds did not need to be published. Further details on GPA implementation were provided; notification to the WTO would be made by 31 December 1997.

Sectoral issues

In agriculture, the implementation of the CAP reform and of WTO commitments, while largely aided by favourable market trends, was seen as a step in the right direction. Average tariffs had been reduced but high out-of-quota rates continued to protect sensitive products; producer subsidy equivalents had increased. Import arrangements for meat, dairy products, rice, fruit and vegetables continued to be a matter for concern. Members called for continued policy reforms in the sector, with further shifts towards direct payments and reduced reliance on price support and export subsidies. In this respect, the recent Commission's Agenda 2000 proposal was welcomed, although some Members wondered whether it went far enough in terms of improved resource allocation as well as market access; information was sought about EU Member States' initial reactions to the proposal.

Members acknowledged improved market access in manufacturing under the combination of single market provisions, the reduction of tariff and non-tariff measures, and new commitments under the Information Technology Agreement. However, several participants expressed disappointment about the slow liberalization of textiles and clothing imports and backloading of restrictive items to the last stages of integration under the ATC. In addition, Members noted that sectors such as automobiles faced difficulties in adjusting to new market trends and cost conditions, also benefitted from high tariff protection and significant financial assistance. Some participants underlined the EU industry's high specialization in medium-technology products.

Most Members appreciated the EU's efforts to liberalize trade in services both internally and externally, in particular in telecommunications and financial services. Some Members asked the EU whether, as services liberalization generated substantial benefits for developed countries, it would support the linkage of services negotiations with other areas of interest to developing countries in the next phase of WTO negotiations.

The representative of the European Union noted that the textiles and clothing sectors were in the process of re-integration into the GATT. The EU's schedule was wholly consistent with its liberalization obligations. However, the EU would review its Stage 1 integration in line with the recommendations of the TMB. He explained the provisions for access under the Europe Agreements, noted that applied tariffs were not above bound rates and that the highest rates could not be described as "peaks". The EU had not yet drawn up plans for Stage 3 of integration under the ATC.

The representative provided some initial responses to a range of questions on agriculture and fisheries, promising written answers at a later stage. These referred principally to SPS measures, measures taken in response to the BSE crisis, further CAP reform, and the fruit and vegetable regime. In some cases Members were referred to information provided to other WTO Committees, e.g., regarding tariff quota administration. The EU was complying with its WTO obligations, including those of internal support. The EU did not consider its intervention agencies as State-Trading Enterprises. Reform of the wine sector was under consideration.

The representative noted that some questions on the ongoing reform in the services sector went beyond WTO obligations, and internal reforms did not necessarily have an impact on external obligations. The EU was seeking liberalization by its trading partners commensurate with what it was offering, but it also recognized the beneficial effect of international commitments on the internal agenda. Details were provided on aspects of the single market programme and external market opening in financial services and transport, the VAT Directive for non-EU service providers in telecommunications and media ownership and the "Television Without Frontiers" Directive in audio-visual services. The rules on electronic commerce were currently being examined.

The EU and the future of the multilateral trading system

Members emphasized that the review was taking place in a period of major policy developments in the EU. Much attention was devoted to the possible consequences of the move towards economic and monetary union and of new enlargements on the EU and third countries. Some Members stressed the potentially beneficial effects of the single currency on transparency and on the security and predictability of trade flows into the euro area. However, further analysis was requested from the EU on the consequences of EMU for European countries which were not in the euro area.

Members generally recognized that the deepening of European integration, with single market completion, preparations for the introduction of a single currency and the reform of Community institutions, had not reduced the EU's involvement in the multilateral system. On the contrary, it was recognized that the EU had contributed to the success of post-Uruguay Round negotiations, promoted the use of dispute settlement procedures, including by acceptance of Panel reports going against the EU, and supported the development of new issues on the WTO agenda. Some members welcomed the statements made by the EU representative concerning the need for comprehensive, rather than sectoral, negotiations in any future WTO round.

The representative of the European Union recalled his opening statement confirming the EU's attachment to the multilateral system. He outlined the programmes that had been or would be established under "Agenda 2000" for domestic reform and the initiation of accession negotiations with applicant governments. The EU would observe its obligations under the relevant provisions of the GATT 1994 and GATS. Enlargement of the EU would also imply a broader Single Market. As in the past, internal integration and external liberalization would continue in parallel.

It was too soon to judge the precise trade effects of the creation of the euro. The clear aim was to have a stable currency. A large number of technical questions would have to be solved.

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This review has illustrated that the EU's influence on the multilateral trading system and its evolution is clearly recognized by Members. This has two consequences: that Members greatly value the positive effects of such liberalizing activities as the Single Market, and that Members are strongly sensitive to any trade policies or measures of the EU that are seen as potentially trade-distorting. Members have also shown their concerns about the systemic effects of the expansion of the EU, the development of a new generation of trade agreements with neighbouring and other countries, and a wide range of specific and sectoral issues. Certainly the trade policies and actions of the EU do not leave any WTO Member indifferent; this has been clearly seen in the large number of advance questions covering a multitude of issues, and the level of the debate in the meeting.

Although this is an "interim" review, it comes at an important time for the development of EU trade policies. Many new developments are underway, not least the move to economic and monetary union (leading to further integration and liberalization of the single market), the revision of the Lomé Convention, and steps toward further EU enlargement. We hope that the comments made in the past two days will be taken into account by the competent organs of the European Union - the Commission and the Member States - in developing their external relations within the multilateral trading system and in formulating the EU's internal policies which have direct or indirect implications for the multilateral trading system.