ࡱ> u@ bjbj Wi,,, 6 BBBD```aTba,*b*bbbbbVc0cR9BnbbnnBBbb<uuunBbBbunu<uAuBBbb cR`sp.MR0ӌ.tXBBBBBL@cNf\uhj@c@c@c' ?!t( ?World Trade OrganizationRESTRICTEDWT/TPR/S/136 23 June 2004 (04-2591)Trade Policy Review Body TRADE POLICY REVIEW European Communities Report by the Secretariat  This report, prepared for the Trade Policy Review of the European Communities, has been drawn up by the ϲʹ 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 Government the European Communities on its trade policies and practices. Any technical questions arising from this report may be addressed to Messrs.Ricardo Barba (5088), Allen Dennis (6844), and Jacques Degbelo (5583). Document WT/TPR/G/136 contains the policy statement submitted by the Government of the European Communities. CONTENTS Page summary observations viii (1) The Economic Environment viii (2) Institutional Framework viii (3) Trade Policy Instruments ix (4) Sectoral Policies x (5) Trade Policy and Trading Partners xi I. Economic environment 1 (1) Main Characteristics 1 (2) Recent Economic developments 4 (3) Trade Performance and Investment 8 (i) Trade in goods 8 (ii) Trade in services 9 (iii) Foreign Direct Investment 12 (4) Outlook 14 II. trade regime 16 (1) Institutional Framework 16 (2) Policy Formulation and Implementation 17 (3) Trade Policy Objectives 19 (4) Trade Regulations and Business Environment 20 (5) Trade Agreements and Arrangements 22 (i) Overview 22 (ii) ϲʹ 24 (iii) Preferential trade agreements and arrangements 27 III. trade policies and practices by measure 37 (1) Introduction 37 (2) Measures Directly Affecting Imports 37 (i) Customs procedures and valuation 37 (ii) Common customs MFN tariff 40 (iii) Other duties and taxes 45 (iv) Duty and tax exemptions and concessions 49 (v) Rules of origin 50 (vi) Tariff preferences 51 (vii) Import prohibitions, restrictions and licensing 52 (viii) Contingency trade measures 54 (ix) Technical barriers to trade 59 (x) Sanitary and phytosanitary measures 63 (xi) Government procurement 66 (3) Measures Directly Affecting Exports 70 (i) Registration and Documentation 70 (ii) Export taxes, charges and levies 70 Page (iii) Export prohibitions, restrictions and licensing 70 (iv) Export subsidies 71 (v) Export assistance 72 (4) Measures Affecting Production and Trade 72 (i) State-owned enterprises 72 (ii) Competition policy and regulatory issues 73 (iii) Intellectual property rights protection 78 IV. trade policies by sector 84 (1) Introduction 84 (2) Agriculture 85 (i) Main features 85 (ii) Common agricultural policy (CAP) 86 (3) Fishieries 100 (i) Main features 100 (ii) Common Fisheries Policy (CFP) 101 (4) Energy 107 (5) Manufacturing 109 (i) Overview 109 (ii) Selected industries 113 (6) Services 116 (i) Overview 116 (ii) Financial services 117 (iii) Telecommunications and postal services 122 (iv) Transport 126 (v) Tourism 132 references 134 APPENDIX TABLES 141 CHARTS Page I. Economic environment I.1 Direction of EC's merchandise trade, 1998-02 10 I.2 Structure of EC's merchandise trade, 1998-02 11 III. trade policies and practices by measure III.1 Applied MFN tariff distribution, 2004 43 III.2 Tariff escalation by ISIC 2-digit, 2004 43 III.3 MFN tariff distribution by sector (ISIC1 definitions), 2004 45 III.4 Total anti-dumping measures imposed, 1991-03 57 III.5 Total contervailing measures imposed, 1991-03 59 IV. trade policies by Sector IV.1 EC's tariff ISIC, 2004 112 TABLES I. Economic environment I.1 Selected indicators of the EC-15, euro area and C-10, 2003 1 I.2 Euro exchange rates, 1996-03 4 I.3 Growth in real GDP and expenditure components of EC-15 and euro area, 2000-03 5 I.4 Key macroeconomic indicators, 2002-03 5 I.5 EC-15's trade in services, 1999-02 12 I.6 EC-15's and C-10's FDI inflows and outflows, 2001-02 13 II. trade Regime II.1 Typology of EC's regional agreements, May 2004 23 II.2 Selected recent EC notifications to the ϲʹ, as of May 2004 25 III. trade policies and practices by measure III.1 Structure of the EC MFN tariffs, 2002 and 2004 42 III.2 Structure of the EC MFN tariff, by ϲʹ sectors, 2004 42 III.3 Summary analysis of EC MFN tariff, 2004 44 III.4 VAT rates applied in EC member States (as at 1 May 2003) 46 III.5 Excise duties, end 2003 48 III.6 Anti-dumping measures, 1998-03 58 III.7 Countervailing measures, 1996-04 59 III.8 ϲʹ notifications of technical regulations by the EC and member States, 1995-03 62 III.9 Notification of emergency measures 63 III.10 Open procurement indicators, 1995, and 2000-02 69 III.11 EC State aid as percentage of GDP, 2001 77 III.12 EC State aid by sector, 2001 78 III.13 Patent application at the European Patent Office by bloc of origin, 1996-2002 80 Page IV. trade policies by sector IV.1 Selected agricultural statistics, 2002 85 IV.2 EAGF guarantee and guidance expenditure by member State, and national expenditure on agriculture, 2002 88 IV.3 Main indicators of support by commodity, 1986-02 89 IV.4 Transfers associated with agricultural policies in the EC, 1986-02 90 IV.5 Current and reformed CAP for key arable crops and animal products 95 IV.6 EC policy options for sugar: advantages and disadvantages 100 IV.7 Intervention mechanisms of the CMO in fishery and aquaculture 106 IV.8 Tariffs and tariff quotas on fishery products 107 IV.9 Structure and size of the manufacturing sector in the CEEC and the EC-15, 2000 110 IV.10 Selected telecommunications indicators, 2002 123 APPENDIX TABLES I. economic environment AI.1 Destinations of EC's exports, 1998-02 145 AI.2 Sources of EC's imports, 1998-02 146 AI.3 Structure of EC's exports, 1998-02 147 AI.4 Structure of EC's imports, 1998-02 148 AI.Estonia 1 Main economic indicators, 1998-02 157 AI.Estonia 2 Balance-of-payments, 1998-02 158 AI.Estonia 3 Structure of exports, 1995-02 159 AI.Estonia 4 Structure of imports, 1995-02 160 AI.Estonia 5 Destinations of exports, 1995-02 161 AI.Estonia 6 Origins of imports, 1995-02 162 AI.Estonia 7 Strucutre of customs tariffs, 2002 and 2003 163 AI.Estonia 8 Applied MFN tariff averages by HS2, 2003 164 AI.Estonia 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2003 168 AI.Latvia 1 Main economic indicators, 1998-02 171 AI.Latvia 2 Balance-of-payments, 1998-02 172 AI.Latvia 3 Structure of exports, 1995-02 173 AI.Latvia 4 Structure of imports, 1995-02 174 AI.Latvia 5 Destinations of exports, 1995-02 175 AI.Latvia 6 Origins of imports, 1995-02 176 AI.Latvia 7 Strucutre of customs tariffs, 2002 177 AI.Latvia 8 Applied MFN tariff averages by HS2, 2002 178 AI.Latvia 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 182 AI.Lithuania 1 Main economic indicators, 1998-02 185 AI.Lithuania 2 Balance-of-payments, 1998-02 186 AI.Lithuania 3 Structure of exports, 1995-02 187 AI.Lithuania 4 Structure of imports, 1995-02 188 AI.Lituania 5 Destinations of exports, 1995-02 189 AI.Lithuania 6 Origins of imports, 1995-02 190 AI.Lithuania 7 Strucutre of customs tariffs, 2002 191 AI.Lithuania 8 Applied MFN tariff averages by HS2, 2002 192 AI.Lithuania 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 196 Page AI.Malta 1 Main economic indicators, 1998-02 199 AI.Malta 2 Balance-of-payments, 1998-02 200 AI.Malta 3 Structure of exports, 1995-01 201 AI.Malta 4 Structure of imports, 1995-01 202 AI.Malta 5 Destinations of exports, 1995-02 203 AI.Malta 6 Origins of imports, 1995-01 204 AI.Malta 7 Strucutre of customs tariffs, 2002 205 AI.Malta 8 Applied MFN tariff averages by HS2, 2002 206 AI.Malta 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 210 II. TRADE REGIME AII.1 EC's regional trade agreements notified to the ϲʹ, as of May 2004 149 III. trade policies and practices by measure AIII.1 Applied MFN tariff averages by HS2, 2004 151 AIII.2 Some recent TBT related EC directives and decisions 155 SUMMARY OBSERVATIONS (1) The Economic Environment The internal economic integration process of the European Communities (EC) was advanced by the adoption of a single currency in the euro area on 1 January 2002. The EC has also enlarged to 25 member States, with ten new members (C-10) since 1 May 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, and Slovenia. With the C-10, the EC population increased by 20%, its land area by 23.1% and its GDP by 5%. In the main, this seventh Trade Policy Review (TPR) of the EC covers the trade policies and practices of its 15 member States (EC-15), before enlargement. The EC-15 has pursued its monetary discipline, which, combined with the appreciation of the euro against major currencies, helped to reduce inflation from 2.2% in 2001 to 2% in 2003. In 2002, the EC-15 registered its first current account surplus since 1998 ( 57.2 billion, equivalent to 0.7% of GDP), followed by a surplus ( 49.7 billion) in 2003. This was partly due to a trade surplus ( 4.8 billion in 2002), derived from the negative growth differential between the EC-15 and its main trading partners (with buoyant demand, notably from the United States and Asia), and the lagged pass-through effects of the appreciation of the euro on the trade balance. The EC's GDP growth rate has slowed since 2001 (from 3.6% in 2000 to 0.8% in 2003), reflecting slower productivity growth, structural rigidities, a reduction in investment expenditure, and lagging private consumption. The decline in economic growth translated into an increase in the unemployment rate, which rose from 7.6% in 2001 to 8.1% in 2003. The ratio of the public deficit to GDP increased from 1% in 2001 to 2.6% in 2003, as a result of both revenue decrease and expenditure increase, with some member States breaching the Stability and Growth Pact (SGP) with repect to fiscal accounts. Long-term sustainability of public finances in the EC-15 is also made difficult by the relatively high levels of government debt in certain member States, to some extent because of ageing populations. In the Broad Economic Policy Guidelines (BEPG) for 2003-05, the Council emphasized that measures identified, under the 2000 Lisbon strategy, to make the EC the most "competitive and dynamic knowledge-based economy in the world by 2010", should be speedily implemented. Recent trends in the EC's trade performance have raised hopes of the recovery of its economy in the coming months. (2) Institutional Framework The most important change to the institutional framework of the EC since its last Trade Policy Review, in July 2002, has been the entry into force of the Treaty of Nice on 1 February 2003, to gear the workings of the EC institutions to its enlargement. Under the Treaty, the EC's competence has been extended to cover the negotiation and conclusion of agreements on trade in services and commercial aspects of intellectual property. Reforms to simplify and improve the regulatory environment and promote a culture of dialogue and participation have also been ongoing. The EC's trade policy is geared towards the liberalization of its trade regime, through both the multilateral and preferential routes. At the multilateral level, the EC continues to be a key player, including in the launch and ongoing implementation of the Doha Development Agenda (DDA). It accords at least MFN treatment to all ϲʹ Members. In general, the EC meets its ϲʹ notification obligations, thereby contributing to the transparency of its trade regime. The EC and its member States are leading contributors to the ϲʹ's Global Trust Fund for technical cooperation. The EC is also a leading user of the ϲʹ dispute settlement system; during the period under review, it was a complainant in seven cases and a third party in 19 disputes, most of which were against the United States. As a consequence of its enlargement to 25 members, procedures relating to a re-negotiation of the EC's tariff concessions have commenced; the EC's preferential trade relations were consolidated, as the Europe and Association Agreements concluded with the acceding countries were terminated, and the new members have adopted the EC's acquis communautaire. The EC has in place several preferential trade agreements (PTAs), and negotiations for new PTAs are ongoing. During the period under review, the EC concluded agreements with Chile, Egypt, Jordan, and Lebanon. Negotiations are ongoing with Albania; Syria; MERCOSUR; countries in the Gulf region; and with groups of African, Caribbean and Pacific (ACP) States, under the economic partnership agreements. However, in order to focus efforts on the multilateral negotiations, no new negotiations were commenced during the period. The EC continues to offer non-reciprocal trade preferences to almost all ACP countries under the Cotonou Agreement; and to developing countries in general under its GSP scheme, including its "Everything But Arms" initiative for tariff- and quota-free access to almost all exports from least developed countries. Currently, the EC's purely MFN regime applies to nine ϲʹ members, which account for some 36% of its merchandise trade. The EC's preferential trade agreements have so far resulted in free trade with the concerned partners in industrial goods and limited liberalization of trade in agricultural goods, i.e. a certain share of its trade with preferential partners is still under the MFN regime. Some PTAs also provide for liberalization of some services subsectors. Under its reciprocal preferential agreements, liberalization is undertaken asymmetrically, with the EC liberalizing at a faster speed. Increasingly, its PTAs are taking into account trade rules (e.g. trade defence instruments, standards and technical regulations) and environmental considerations, and are with or seek to encourage other regional groupings. (3) Trade Policy Instruments The EC's MFN tariff has remained largely unchanged since its last TPR. The average applied MFN tariff rate has remained fairly stable at 6.5% in 2004. However, the tariff structure remains complex, particularly on agricultural products. Non-ad valorem duties, applied on some 46% of agricultural tariff lines, comprise specific, mixed, compound and "entry price" (variable) duties; and in some cases, these duties are applied according to the technical content of products and could vary with the season. Agricultural products attract the highest tariff rates, reaching up to an ad valorem equivalent of 209.9% on whey and products consisting of natural milk constituents. In aggregate, due to the relatively high protection of agricultural products, the tariff shows mixed escalation, negative from the first stage of processing to semi-processed goods, and then positive to fully processed products. Export subsidies (mostly on agricultural products), though on the decline, remain relatively high. Import prohibitions maintained in the EC are generally based on international agreements. Import licences are required for surveillance, quota management, and safeguard purposes. Tariff quotas maintained on textiles and clothing are due to expire by 31 December 2004. Other tariff quotas, applied to some 89 agricultural products, are filled at about 67%. Customs procedures are harmonized amongst EC member States, although their uniform implementation remains a challenge. Under its "Customs 2007 programme", the EC is improving its customs administration through, inter alia, the implementation of various communication and information exchange systems to support the creation of a paperless (electronic) customs environment. Similar information technology systems are being implemented to improve the administration of VAT and excise duties, both of which apply to imports and locally produced goods at the same rates, though not fully harmonized among EC member States. During the period under review, directives were adopted to ensure that VAT is collected at the place where certain services are consumed (recipients destination). The EC remains a leading user of contingency trade remedies; in 2002 and 2003, it initiated a total of 27 anti-dumping, 4 countervailing and 3 safeguard investigations. Technical regulations remain partially harmonized among EC member States. At the Community level, the Old-Approach Directives specify detailed technical requirements, and the New-Approach Directives specify the essential requirements. Conformity assessment is carried out by bodies designated by member States; however for some products, the EC accepts the supplier's declaration of conformity. Some developed countries take part in the EC's conformity assessment activities through mutual recognition agreements. The EC is also engaged in several assistance programmes with developing countries in the field of technical regulations. On food safety, the EC attaches great importance to the need to maintain a high level of safety at all levels of the food chain. To this effect, Community-wide legislation on sanitary and phytosanitary standards has been adopted. Concerns have been raised by third countries about some of these regulations. The EC has taken measures to simplify, modernize, and make more flexible its public procurement regime. In May 2004, reforms relating to the coordination of public procurement procedures were approved. Measures taken in the area of competition policy include: legislative reforms aimed at modernizing the enforcement system for EC competition rules, and reducing the incidence of anti-competitive practices in the motor industry and air transport sector; block exemptions in specified areas; and a revision of the merger regulation. On intellectual property protection, legislation was adopted on, inter alia, the registration of EC designs; protection of geographical indications and designations of origin for agricultural products and foodstuff; and on measures to combat counterfeiting and piracy. (4) Sectoral Policies Since its last TPR, the EC has continued to reform its Common Agricultural Policy (CAP) by lowering distortions, achieving greater market orientation, and reducing agricultural support, mainly through the decoupling of payments from production. However, tariff protection at an average rate of 10% for agriculture (major division 1 of ISIC, Revision 2), or 16.5% using the ϲʹ definition of agricultural products, and domestic support, coupled with the limited liberalization of trade in agricultural products under the EC's preferential trade agreements, continue to limit foreign competition and to generate surpluses of some products. The policy has made subsidies important for exports of certain surpluses, as well as of some processed agricultural products. Since 2003, the EC has a new Common Fisheries Policy (CFP), aimed at achieving biologically, environmentally, and economically sustainable fisheries by, inter alia, better conserving fish stocks, protecting the marine environment, and ensuring the economic viability of the European fleets. The main changes to the previous CFP are: the adoption of a long-term approach to fisheries management; a new fleet policy; socio-economic measures; access to waters and resources; and involvement of stakeholders in decision-making. The EC has an energy-intensive economy, which is about 50% self-sufficient in energy. Support is still granted for, inter alia, more efficient environmental friendly energy. Modifications to the energy policy guidelines are envisaged to achieve security of energy supply, complete the EC internal market, and enhance competition in the subsector. Under recently enacted legislation, the electricity and natural gas markets have been further liberalized and made more efficient. EC's productivity growth in manufacturing has continued to decelerate. The sector is also a major beneficiary of state aid. The EC is implementing wide-ranging programmes to make manufacturing more productive. Tariffs on manufactured imports (major division 3 of ISIC, Revision 2) average 6.4%, with relatively high rates on some processed food products. The services sector is, by far, the most important contributor to the EC's real GDP and employment. Nevertheless, the sector has lagged behind others in creating a single market, largely because of differences in regulation across member States. The EC has taken steps to address some of the structural problems in certain services subsectors, particularly through the Financial Services Action Plan (FSAP), the reform of the regulatory framework on telecommunications, and progress on the Action Plan for Transport. Further liberalization of services is considered as the most important mid- and long-term goal of EC reforms, since it would boost the overall "competitiveness" of the economy. (5) Trade Policy and Trading Partners The EC has a long-standing commitment to the multilateral trading system and participates actively in various PTAs. It was fundamental in building support for the launch of the DDA and has been instrumental in advancing it by tabling proposals in several areas. The unrelenting commitment of the EC to the ϲʹ is vital to a successful conclusion of the DDA.  Enlargement has consolidated trade relations within Europe. Enlargement and the EC's PTAs have also contributed to further improving competition in the economy. However, the wide variety of PTAs, with different trade liberalization agendas and trading rules (including rules of origin) further complicates the EC's trade regime. Moreover, for preferential trading partners, absence or delays in alignment of their regimes may lead to trade diversion to the detriment of their exports. Nevertheless, the decision by the Council not to launch new preferential trade negotiations may relax pressure on demand for administrative and negotiating resources. The EC market is open for non-agricultural products and somewhat protected for agricultural goods. The EC is the world's leading exporter and the second-largest importer of goods. This is indicative of the importance of trade to the EC, and of the significance of the EC market for the world at large. Therefore, further simplification of the EC's trade regime, notably of its tariff structure on agricultural products, harmonization of trade-related procedures at the EC-25 level, and the continuation of structural reforms would substantially contribute to the promotion of world trade and to the improvement of the EC's resource allocation.  Previous Trade Policy Reviews of the European Communities had used the "European Union" in the title. At the request of the Commission, the title has been changed to the "European Communities". 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 Communities. 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