European Union 2000 Volume 1 World Trade Organization Geneva, November 2000



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European Union

2000

Volume 1




World Trade Organization

Geneva, November 2000

PREFACE

The Trade Policy Review Mechanism (TPRM) was first established on a trial basis by the GATT CONTRACTING PARTIES in April 1989. The Mechanism became a permanent feature of the World Trade Organization under the Marrakesh Agreement which established the WTO in January 1995.


The objectives of the TPRM are to contribute to improved adherence by all WTO Members to rules, disciplines and commitments made under the Multilateral Trade Agreements and, where applicable, the Plurilateral Trade Agreements, and hence to the smoother functioning of the multilateral trading system, by achieving greater transparency in, and understanding of, the trade policies and practices of Members. Accordingly, the review mechanism enables the regular collective appreciation and evaluation of the full range of individual Members' trade policies and practices and their impact on the functioning of the multilateral trading system. It is not intended to serve as a basis for the enforcement of specific obligations under the Agreements or for dispute settlement procedures, or to impose new policy commitments on Members.
The assessment carried out under the TPRM takes place, to the extent relevant, against the background of the wider economic and developmental needs, policies and objectives of the Member concerned, as well as its external environment. However, the function of the review mechanism is to examine the impact of a Member's trade policies and practices on the multilateral trading system.

Under the TPRM, the trade policies of all Members are subject to periodic review. The four largest trading entities in terms of world market share, counting the European Union as one, are reviewed every two years, the 16 next largest trading entities every four years, and other Members every six years; a longer period may be fixed for least-developed countries.

The reviews are conducted by the Trade Policy Review Body (TPRB) on the basis of two documents: a policy statement by the Member under review and a comprehensive report drawn up by the WTO Secretariat on its own responsibility.


TABLE OF CONTENTS

[Page number references are to the corresponding print version.]

Volume 1

Page
PART A CONCLUDING REMARKS BY THE CHAIRPERSON vii
PART B REPORT BY THE WTO SECRETARIAT xi

Volume 2

PART C REPORT BY THE EUROPEAN UNION 7


PART D MINUTES OF THE TPRB MEETING 23

PART A

CONCLUDING REMARKS BY THE CHAIRPERSON


OF THE TRADE POLICY REVIEW BODY,
H.E. DR. IFTEKHAR AHMED CHOWDHURY
AT THE TRADE POLICY REVIEW OF
THE EUROPEAN UNION


12 AND 14 JULY 2000

CONCLUDING REMARKS BY THE CHAIRPERSON

1. The Chairperson noted the very informative discussions on the trade policy regime of the European Union. He was pleased to note the large number of delegations – representing developed and developing countries, including least developed – that had submitted questions and made statements to assist the process of review, drawing on the extensive documentation prepared for the exercise. He also thanked the Commission for its statements and the efforts it had made to provide detailed answers to the many questions it received, some on short notice. This very high level of participation had permitted a comprehensive collective review of the trade policy regime of the European Union, which was known to be a market of key interest to all Members. Several key elements had emerged to which he would draw attention in his remarks.

2. The improving economic environment in the EU was of great importance to the WTO membership. Many developing country delegations had noted the singular importance of the EU as a destination market for their exports. A number of delegations had also stated the importance they attached to the health of a market where their enterprises had located to manufacture goods or to supply services to EU consumers. There had been a consensus that the recovery of economic activity had been assisted by the deeper integration of the Single Market, brought about by the advent of the euro and further deregulation, in particular of service sectors. The EU had been encouraged to make further progress towards the Single Market, including by reducing non-transposed directives, which would make a contribution to sustaining the EU's growth in the future.

3. There had also been a wide appreciation of the leading role of the EU in the WTO. The EU had been commended on the generally broad scope of its commitments and the attention it gave to its notification obligations. On dispute settlement however the EU had been urged to speedily resolve the outstanding implementation problems in the bananas case. Divergent views had been heard on the EU's multi-faceted approach to trade policy, combining multilateral with regional and bilateral initiatives. There had in particular been interest on the nature of the commitments exchanged on agricultural products and services in the recently concluded agreements with South Africa and Mexico, as well as a number of comments on the Partnership Agreement of Cotonou. It had been noted that the EU imports on an MFN basis only from eight WTO Members; the EU's own exports benefitted from MFN treatment in the markets of WTO Members except for the 17 non-EU Members with which free trade or customs unions were in place. There was no better testimony to the EU's commercial interest in the bedrock principle of MFN.

4. Comments had also been made on the planned enlargement of the EU to countries in Central and Eastern Europe. Members were following the Intergovernmental Conference with interest, in particular with regard to the competencies of the EU and of the Member States over policies in trade-related areas, which directly affected the modus operandi of the EU in the WTO. And a number of Members that were exporters of agricultural products had a keen interest in further progress on Agenda 2000, beyond the agreement reached last year in Berlin, to reconcile the operation of the Common Agricultural Policy with the advent of new members. In the period ahead, leading up to accession, third counties had hoped the candidate countries would maintain open markets and avoid the adoption of policies – whether in agriculture, other products or service sectors – that adversely impacted on their conditions of market access. Finally, upon accession itself, the need to minimize trade diversion had been underscored.

5. It was also fair to say that, while Members appreciated the generally open character of the EU market, there remained a number of specific concerns regarding the conditions of access to the EU market. The EU had received a number of comments on the above average tariffs and quotas in the textiles and clothing sectors. The disappointing pace of integration of the sector under the first and second phases of integration under the ATC had been mentioned. Hope had been expressed that the EU would do more to lift restrictions in the third phase. The operation of the CAP had also been of concern, both in terms of limiting market access on the EU market and the spill-over effects on world markets of the heavy use of export subsidies. Concerns had been raised with respect to the complexity and protective effects of the import regime for agricultural products. The operation of the EU's anti-dumping and anti-subsidy instruments had also been of concern, including the rising incidence of such measures and their effect on exports of developing countries. There had been a number of remarks to the effect that technical regulations and standards, as well as SPS measures, and conformity assessment procedures, had become a more significant aspect of market access, in some instances a barrier, and that policies to ensure a higher level of food safety in the EU might develop in the same direction.

6. With respect to market access on services, several delegations had indicated their interest in better conditions of access for natural persons, both in terms of making existing GATS commitments on temporary movement of business persons more effective, as well as broadening the scope of the EU's commitments on such movement. The EU had also received a number of questions on its plans for regulatory harmonization in the sectors of financial services, telecommunications and transportation. And a number of Members had views on the policies the EU is elaborating on electronic commerce. With respect to the protection of intellectual property rights, there had been considerable interest among the membership on plans to develop a EU-wide framework on patent rights.

7. The Chairperson also drew the attention of the members to the stimulating discussion that had taken place on the future of the organization, a process in which the EU was playing a key role. The Commission had stated that the EU advocates a wider scope for the remit of the WTO, encompassing investment, competition policy, environment and dialogue on issues of social concern. The EU also advocated a more open and transparent institution. These changes, the EU had argued, would better enable the organization to harness the process of globalization and make it work for the citizens of its Members.

8. On some of these points, however, the Chairperson had noted divergent views. Several delegations had urged the EU to focus its attention on the negotiations on the built-in agenda, rather than await the outcome of consensus-building on a new round. On agriculture, there had been support from some quarters for the EU's approach of multifunctionality, while other delegations had favoured an exclusively market-oriented agricultural policy. A number of delegations had firmly rejected integrating a social dimension – or indeed non-trade concerns more broadly - in the conduct of trade policy, whether in the WTO or through the GSP.

9. The Commission had also stated that another component of the EU's vision of the future of the WTO was a better integration of developing countries into the multilateral trading system, by devoting resources to technical assistance and capacity-building, and enacting market-opening initiatives for the least developed among them. In this respect some delegations had urged upon the EU the need for duty-free and quota-free access for all products originating in LDCs. The Chairperson had detected a wide appreciation for the EU's support for a WTO that is more inclusive of developing countries, to assist their integration into the world economy, and facilitate their development.


PART B

REPORT BY THE SECRETARIAT




This report was written by Alice Enders and Ivan Alves with Willy Alfaro as supervisor.

Clemens Boonekamp

Director


Trade Policies Review Division
CONTENTS

[Page number references are to the corresponding print version.]


PAGE

SUMMARY OBSERVATIONS xvii

(1) Recent Economic Developments xvii

(2) Institutional Developments xviii

(3) External Trade Relations xviii

(i) Basic objectives xviii

(ii) WTO xviii

(iii) Preferential trade agreements and arrangements xix

(4) Market Access for Goods xix

(5) Market Access for Services xx

(6) Protection of Intellectual Property Rights xxi

I. ECONOMIC ENVIRONMENT 1

(1) Introduction 1

(2) Recent Economic Developments 2

(i) Growth patterns 3

(ii) Labour market performance 4

(iii) Public finances 5

(iv) Inflation 7

(v) Monetary policy 7

(vi) The exchange rate 8

(3) Developments in Trade 8

(i) Composition of merchandise trade 10

(ii) Direction of trade 11

(4) Outlook for 2000 and 2001 12

Annex I.1: Stage 3 of the Economic and Monetary Union: the euro 14

II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 18

(1) Introduction 18

(2) General Framework 19

(i) Recent developments 19

(ii) Legislative procedures 19

(iii) Trade and trade-related policy-making 22

(iv) Transparency and consultation of the public 23

(3) Objectives of Economic and Trade Policy 24

(i) Internal Market 24

(ii) Agenda 2000 25

(iii) Market access strategy 26

(4) External Trade Relations 28

(i) WTO 28

(ii) Preferential trade agreements 32

(iii) Preferential arrangements 35

(iv) Partnership and cooperation agreements 37

(v) Other agreements on trade and economic relations 37



PAGE

III. TRADE POLICIES AND PRACTICES BY MEASURE 39

(1) Overview 39

(2) Measures Directly Affecting Imports 40

(i) Customs procedures 40

(ii) Customs valuation 42

(iii) Rules of origin 42

(iv) Community tariff 43

(v) Indirect taxes 48

(vi) Prohibitions, restrictions, and licensing requirements 51

(vii) Safeguard measures 56

(viii) Product regulations and standards 56

(ix) Government procurement 63

(x) State-trading (as defined in GATT Article XVII) 65

(xi) Anti-dumping and countervailing measures 66

(3) Measures Directly Affecting Exports 69

(i) Procedures 69

(ii) Prohibitions, restrictions, and licensing 70

(iii) Duties 71

(iv) Export subsidies 71

(v) Export assistance 71

(vi) State-trading enterprises 71

(4) Measures Affecting Production and Trade 71

(i) Legal framework for businesses 71

(ii) Subsidies 75

(iii) Competition policy 79

(iv) Intellectual property rights protection 83

IV. TRADE POLICIES BY SECTOR 88

(1) Overview 88

(2) Agriculture 89

(i) Features 89

(ii) Common Agricultural Policy (CAP) 91

(3) Developments in Selected Manufacturing Industries 99

(i) Overview 99

(ii) Automobiles 100

(iii) Pharmaceutical products 105

(iv) Aerospace 109

(v) Shipbuilding 111

(4) Services 114

(i) Overview 114

(ii) Financial services 116

(iii) Telecommunications 122

(iv) Transport services 129

(v) Audio-visual 137

ANNEX IV.1 ELECTRONIC COMMERCE 142

ANNEX IV.2 EC FINANCIAL SERVICES SCHEDULE IN GATS 145

REFERENCES 147

APPENDIX TABLES 155

CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 External trade by sector, 1998 11

I.2 External trade by partner, 1998 12


III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Protective effect of duty regime for lemons, 1999 45

III.2 Standard rates of corporation tax in the European Union 74
IV. TRADE POLICIES BY SECTOR

IV.1 EU share in world trade of principal traded products, 1997 91

IV.2 Share of Member States in EU final production of agriculture and

in EAGGF guarantee section expenditures, 1998 93

IV.3 Tariffs on non-agricultural manufactured products, 1999 101

IV.4 Trade in the automotive sector, 1995-98 102

IV.5 Trade in the pharmaceutical sector, 1995-98 106

IV.6 Capacity and market shares in shipbuilding 111

IV.7 Trade in the shipbuilding sector with selected countries, 1995-98 113

IV.8 Local interconnection rate, September 1999 and March 2000 126

IV.9 Cost of international calls and its average annual variation, as of 1 August 1999 127

IV.10 Trade balance of selected transport services, 1992-97 130

IV.11 Cross-border routes and number of competitors, 1992-97 133

IV.12 Airfares by number of carriers on the route 134

IV.13 Nationality of major open-registry fleets, as at 31 December 1997 135

IV.14 Growth of non-free-to-air share of content provider revenues, 1995 and 2005 138

IV.15 Trade in audio-visual services between the European Union and

North America, 1993-98 139

TABLES
I. ECONOMIC ENVIRONMENT

I.1 Major features of the EU economy by Member States, 1998 2

I.2 Overall performance of the EU economy, 1996-99 3

I.3 Main economic indicators by Member State, 1996-98 5

I.4 Extra-EU trade by EU Member States, 1998 9
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES

II.1 Breakdown by area and Member State of non-transposed Directives 24

II.2 Preferential trade agreements of the European Union, 1999 31
III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Applied MFN tariff, 1999 44

III.2 Summary of MFN and preferential regimes, 1999 47

III.3 VAT rates by Member State, 1999 49



Page
III.4 Excise taxes on selected products by Member State, 1999 51

III.5 Quantitative restrictions on imports of textile and clothing products 54

III.6 WTO notifications of technical regulations by the EC and Member States, 1995-99 62

III.7 Summary of the EU's main commitments under the Agreement on


Government Procurement, 2000 66

III.8 Anti-dumping actions, 1990-99 69

IV. TRADE POLICIES BY SECTOR

IV.1 Basic agricultural statistics in Member States, 1998 89

IV.2 Distribution of final agricultural production of selected items by Member State, 1998 90

IV.3 Consumption and self-sufficiency in selected primary agricultural products, 1997-98 90

IV.4 EAGGF Guarantee Section expenditure by selected crop and economic measure, 1998 94

IV.5 Tariff protection on the EU's leading agricultural product imports, 1999 97

IV.6 Transfers associated with agricultural policies, 1986-99 98

IV.7 EU trade in individual services sectors, 1992 and 1997 115

IV.8 Overview of transposition of recent harmonization directives, 1 October 1999 125

IV.9 Number of operators in EC telecommunication services, August 1999 128

Annex Table Schedule of sector-specific commitments 146


APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Leading merchandise imports by SITC Rev.3 category, 1995-98 (extra-EU trade) 157

AI.2 Leading merchandise exports by SITC Rev.3 category, 1995-98 (extra-EU trade) 168

AI.3 EU services trade by sector, 1996 and 1997 159

AI.4 Balance of payments of the euro area, 1997-99 160

AI.5 Merchandise imports by region and country, 1995-98 161

AI.6 Merchandise exports by region and country, 1995-98 162


II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1 Selected WTO documents of the European Communities, 1995-99 163

AII.2 Complaints initiated by the European Union, 1995-99 167

AII.3 Complaints against the European Communities and/or its Member States, 1995-99 171
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Applied MFN tariffs by HS Chapter, 1999 173

AIII.2 Simple average tariffs under MFN and preferential regimes, by HS Chapter, 1999 176

AIII.3 Quantitative restrictions on imports of textile and clothing products by category

and country coverage 179


IV. TRADE POLICIES BY SECTOR
AIV.1 Principal traded agricultural products by selected destination/origin, 1998 181

AIV.2 Applied MFN tariffs by ISIC Rev.2 category, 1999 182



AIV.3 Summary of intra-EU air transport packages 185
SUMMARY OBSERVATIONS

(1) Recent Economic Developments


1. Since its last Trade Policy Review in 1997, the European Union (EU) has continued to make significant progress towards the completion of the Internal Market, including with the introduction of the euro. Since 1997, led by domestic demand, growth has risen to an average of some 2.5% a year and inflation has declined to historically low levels, at 1.2% in 1999. Unemployment, however, remains high, at 9.2%. Capitalizing on the economic potential of a quickly changing and competitive international environment is seen as requiring a correspondingly high degree of flexibility in labour, goods and services markets.

2. In the framework of the Growth and Stability Pact, macroeconomic policies of Member States have been supportive of the economic recovery, geared to fiscal discipline and price stability. The euro was introduced on 1 January 1999 for 11 of the 15 Member States. The European Central Bank (ECB) now conducts monetary policy for the euro area with the objective of maintaining price stability (inflation below 2%). No active exchange rate policy is in principle pursued for the euro, which had declined by over 20% against the dollar by April 2000.

3. Structural policies have also been supportive of growth in the economy of the EU. The Community's initiatives to complete the Internal Market are aimed at improving the efficiency and functioning of markets for goods, services and capital. Notable efforts have been made to liberalize financial services (whose effects on capital markets were enhanced by the euro), and telecommunications, supported by the EU's WTO commitments.

4. Greater importance has been given to an effective competition policy due to the structure of markets in newly deregulated sectors such as telecommunications. In addition, a wave of mergers and acquisitions has taken place in sectors affected by Internal Market initiatives or the rising importance of electronic commerce. More generally, increasingly globalized markets have boosted transatlantic merger activity.


5. Job creation is the EU's central economic policy objective, to be realized through improved competitiveness of European enterprises, operating in a business environment enhanced by EMU and more efficient markets. Although the jobless rate has been declining steadily since 1997, and dipped into single digits in 1998 for the first time in five years, it is still above the natural rate. To achieve more efficient labour markets, a Community-wide employment strategy has been in place since 1998, with National Action Plans for each Member State.

6. International trade trends have largely mirrored domestic economic developments. The EU's export and import growth (in value terms) fell sharply in 1998 compared with 1997, although the slowdown was more marked on the export side. These trends continued in 1999, with export growth estimated at 3% compared with 9% growth for imports. In addition to stronger internal demand, import growth (in value terms) was affected by the more than doubling of the price of oil on world markets, and the declining euro. The EU's longstanding surplus on merchandise trade gave way to a deficit of _ 13.7 billion in 1999.

7. The composition of the EU's trade shifted sharply away from Asia in 1998, due to the crisis in emerging markets. Sustained growth in the United States – the EU's leading trade partner – has accordingly boosted the share of this market to 22% of the EU's exports in 1998. Central and Eastern Europe have also gained in importance, reaching a combined share of over 15% in EU exports. In 1999, these trends were, to some extent, reversed due to the recovery of the Asian markets.

8. Real GDP growth in the EU is expected to accelerate from 2.3% in 1999 to 3.4% in 2000 and 3.1% in 2001. Net job creation is expected to continue at a rate above 1% over the next two years, with employment increasing by 1.3% in 2000 and 1.2% in 2001. However, further structural reforms would need to accompany economic growth in order for the unemployment rate to be pushed below the forecasted 7.9% in 2001.


(2) Institutional Developments

9. The Treaty of Amsterdam revised the founding treaties of the EU in May 1999 to bring the Community closer to its citizens. The European Parliament is engaged in co-decision with the Council for an expanded range of areas, and the scope of qualified majority voting in the Council is also wider. The EU is committed to greater openness of decision-making through transparency and consultation of civil society in all policy areas, including on trade policy matters.

10. Preparations for enlargement continued with all applicants from Central and Eastern Europe formally joining the process in February 2000. An Intergovernmental Conference is meeting in 2000 to address the institutional issues raised by enlargement. Other related issues are the functioning and financing of the major Community programmes on agriculture and structural operations. A reform of the Common Agricultural Policy (CAP) was thus agreed in 1999 in the context of Agenda 2000.

(3) External Trade Relations

(i) Basic objectives

11. The basic objectives of the EU's trade policy regime have remained largely the same since the last Review. The EU continues to pursue multilateral, regional, and bilateral initiatives to liberalize trade. At the multilateral level, the EU is a proponent of a new round of negotiations, with a broader agenda than the one "built-in" to the Uruguay Round, where negotiations began in 2000. At the regional level, the EU's new generation of agreements emphasize a greater reciprocity of market-access commitments than in the past, and concern a broader range of trading partners, notably in Latin America. Development policy is accordingly focussed more narrowly on least developed countries and GSP beneficiaries.


12. With major trading partners, the EU is emphasizing the reduction of non-tariff barriers to trade resulting from product regulations and standards, and has concluded mutual recognition agreements on the results of conformity assessment. In addition to such initiatives, the EU and the United States have strengthened the framework for their relations, both inside and outside the WTO, to more effectively manage their trade conflicts.

(ii) WTO

13. The EU is a key participant in the WTO. Notifications of trade policy developments are regularly made to the WTO and are in principle also available to the public in keeping with the EU's policy of transparency. Uruguay Round commitments are being implemented on schedule, although the extent of actual trade liberalization appears to be modest. The EU is part of all WTO initiatives to liberalize trade, from information technology products and pharmaceuticals, to financial services and telecommunications.

14. The EU is a leading user of the dispute settlement procedures to enforce multilateral trade obligations of its trading partners, and is also frequently involved as a respondent, often on transatlantic disputes. Most complaints are settled at an early stage, but the EU has had difficulties in complying with rulings in two high-profile cases – bananas and hormone-treated beef – leading to retaliation authorized by the WTO against the EU's exports in 1999. The EU does however recognize that its efforts to ensure that WTO trading partners comply with their obligations must be accompanied by its own rigorous compliance with the agreements.

(iii) Preferential trade agreements and arrangements

15. Since 1995, "Euro-Mediterranean" association agreements to establish bilateral free-trade areas were concluded with Israel, Jordan, Morocco, the Palestine Liberation Organization, and Tunisia; an agreement at negotiator's level was reached with Egypt in 1999. A free-trade agreement with South Africa came into force in 2000. The EU's first preferential trade agreement in the Americas was concluded in November 1999, with Mexico, and negotiations started in 2000 with Chile and MERCOSUR.


16. In February 2000, the EU and the African, Caribbean and Pacific (ACP) countries agreed on a successor to the Fourth Lomé Convention. The Cotonou Agreement continues the EU's non-reciprocal trade preferences until 2007 at the latest, to permit the parties to conclude new trading arrangements, with the aim of WTO-compatibility. WTO Members are considering a request for a waiver.

17. For most developing country trade partners, the Community's GSP scheme offers preferences on (mainly) non-agricultural products. Supplementary preferences are available to least developed countries, as well as countries combatting drug production and trafficking. A new feature is the additional preferences on offer – as a positive inducement – to countries adhering to core labour standards or to environmental standards.

(4) Market Access for Goods

18. To the benefit of its consumers, the EU has a largely open market for non-agricultural products, with an average MFN tariff of 4.2% in 1999, compared with 4.9% in 1997. In addition, the EU removed six quantitative restrictions under the WTO Agreement on Safeguards, notably Germany's restriction on coal (in place since 1958), and the "consensus" with Japan on imports into the EU of motor vehicles of Japanese origin (in force from 1991 to 1999).

19. Textiles and clothing is a category of imports subject to above-average tariffs, tariff escalation, and quotas; the EU's first and second stage integration of the sector into GATT 1994 lifted quotas on 12 of the 52 product categories restricted in 1990 (5.4% of restricted imports), affecting only a handful of developing countries. Anti-dumping measures are in place on imports of iron and steel products, electronic products, and chemicals from a number of origins, and a rising trend for measures in force is expected for 2000 due to the three-fold increase in the number of initiations of new investigations in 1999. State aid undermines conditions of competition in parts of the manufacturing sector, and aid levels have remained largely unchanged since the last Review, except for Germany where aid to the new Länder declined sharply.


20. Conditions of access are also affected by the EU's numerous preferential trade agreements and arrangements, which make exclusively MFN treatment applicable only to imports from eight WTO Members: Australia; Canada; Hong Kong, China; Japan; Republic of Korea; New Zealand; Singapore; and the United States. The most beneficial treatment is granted to least developed countries and ACP countries (95% of lines are duty free), followed by regional trade agreements (80%), GSP beneficiaries (54%), and countries only subject to MFN (20%).

21. Conditions of access on agricultural products are affected by the operation of the CAP. High levels of self-sufficiency apply to primary agricultural products, such as wheat, dairy products, and meat, with spillover effects on world markets. The simple average tariff on agricultural products is estimated at 17.3%, although access on high-tariff items mainly takes place through tariff quotas. The EU's allocation and administration of tariff quotas has been highly controversial in the WTO in the case of bananas. Other complexities of the border regime for agricultural items produced in the Community include duties assessed in specific terms, on the basis of ingredients or the season, or based on the entry price. As a result, more open conditions of access generally apply to items not produced in the EU (e.g. coffee, cocoa).

22. In addition to border measures, the Community spent some _ 45 billion (US$50 billion) on the CAP in 1999, making agriculture – at 45% of the budget – the most visible item of Community expenditure. OECD estimates indicate that the level of support to agricultural producers in 1998-99 reached the previous historical high of 1986-88, although direct payments (which are subject to production-limiting programmes) have risen in importance to account for about one-quarter of the total. A further shift to direct payments is foreseen by the reform of the CAP agreed in 1999, with cuts in market price support for cereals, dairy, and meat.


23. Product regulations and standards are a key market access issue, both for the Internal Market and for trading partners. The Community has concluded mutual recognition agreements on the results of conformity assessment with Australia, Canada, New Zealand, Switzerland, and the United States, and is negotiating one with Japan. For the future, market access conditions for exporters of foodstuffs are likely to be affected by the EU's policy of greater food safety, linked to a number of "food scares" at Community level.

24. Government procurement is also a key market access issue for the Internal Market and for trading partners. Procurement of goods and services accounted for some 14% of Community GNP, or over _ 1,000 billion, in 1998. Greater competition in this area has long been a central objective of the EU to ensure a better use of public monies, but results to date are disappointing.

(5) Market Access for Services

25. The EU is committed to continue removing restrictions to competition and trade in the services sector. Among subsectors, however, the pace of liberalization differs significantly. Since the last Review in 1997, major legislative developments have taken place in financial services and telecommunications. The effects of these internal policy developments on conditions of competition in these sectors have been reinforced by the EU's commitments in the WTO providing national treatment to foreign service providers. In contrast, WTO commitments have not been made for transportation and audio-visual services, and EU legislation provides for various forms of European or bilateral preference.

26. Starting in 1998, in parallel with WTO commitments, telecommunication services and infrastructure in the EU were opened to competition, including to foreign operators. A more competitive market has rapidly developed. Legislative changes aimed at harmonizing disparate conditions and standards are to be completed by the end of 2001. A concentration of suppliers has taken place to exploit economies of scale in the provision of long-distance and mobile telephony services, subject to the Commission's active enforcement of EU competition law.


27. Developments relating to financial services include the implementation of the Action Plan for the sector, to harmonize regulation where necessary, as well as the structural change to capital markets resulting from the introduction of the euro in 1999. In addition, the EU's WTO commitments in the sector came into force in March 1999, extending the principle of the single passport to foreign providers in banking and insurance. Growth has been especially dynamic in banking and securities.

28. Notwithstanding the importance of these developments, an increasing exposure of the services sector to competitive forces inside and outside the EU has revealed certain structural rigidities whose correction could enhance the economic performance of the sector.

(6) Protection of Intellectual Property Rights

29. Community initiatives to complete the Internal Market have to some extent harmonized regimes of the Member States, supplemented by instruments creating unitary Community rights on trade marks and plant varieties. Since the last Review in 1997, new harmonization initiatives apply to the legal

protection of biotechnological inventions and to the protection of designs, and an initiative is planned for the patentability of computer programs. Initiatives are also planned to establish new unitary rights through a "Community design" and a "Community patent". A 1999 study highlights infringements of trade marks and copyright, with worst affected areas being computer software, audio-visual and clothing.
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