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World Trade Organization |
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WT/TPR/S/177 | |
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(07-0241) |
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Trade Policy Review Body |
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TRADE POLICY REVIEW Report by the Secretariat EUROPEAN COMMUNITIES |
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This report, prepared for the eighth Trade Policy Review of the European Communities, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from European Communities on its trade policies and practices. Any technical questions arising from this report may be addressed to Mr. Ricardo Barba (tel: 022/739 50 88), Mr. Arne Klau (tel: 022/739 57 06), or Mr. Jacques Degbelo (tel: 022/739 55 83). Document WT/TPR/G/177 contains the policy statement submitted by the European Communities. |
Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on the European Communities.
CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) The Economic Environment ix
(2) Institutional Framework ix
(3) Trade Policy Instruments x
(4) Sectoral Policies xi
(5) Trade Policy and Trading Partners xii
I. Economic environment 1
(1) Main Characteristics 1
(2) Recent Economic Developments 3
(3) Trade Performance and Investment 8
(i) Trade in goods 8
(ii) Trade in services 12
(iii) Foreign direct investment 13
(4) Outlook 14
II. trade and Investment regimes 16
(1) Institutional Framework 16
(2) Policy Formulation and Implementation 17
(3) Trade Policy Objectives 19
(4) Trade Regulations and Business Environment 21
(5) Trade Agreements and Arrangements 23
(i) Overview 23
(ii) WTO 24
(iii) Preferential trade agreements and arrangements 28
III. trade policies and practices by measure 40
(1) Introduction 40
(2) Measures Directly Affecting Imports 40
(i) Customs procedures and valuation 40
(ii) Common Customs MFN Tariff 42
(iii) Other duties and taxes 47
(iv) Duty and tax exemptions and concessions 51
(v) Rules of origin 51
(vi) Tariff preferences 52
(vii) Import prohibitions, restrictions, and licensing 52
(viii) Contingency trade remedies 54
(ix) Technical barriers to trade (TBT) 57
(x) Sanitary and phytosanitary (SPS) measures 59
(xi) Government procurement 61
(3) Measures Directly Affecting Exports 64
(i) Registration and documentation 64
Page
(ii) Export taxes, charges, and levies 65
(iii) Export prohibitions, restrictions, and licensing 65
(iv) Export subsidies 66
(v) Export assistance 66
(vi) State-trading enterprises 67
(4) Measures Affecting Production and Trade 67
(i) State-owned enterprises 67
(ii) Competition policy and regulatory issues 67
(iii) Intellectual property rights 73
IV. trade policies by sector 79
(1) Introduction 79
(2) Agriculture and Related Activities 79
(i)
(ii) Common Agricultural Policy (CAP) 82
(3) Fisheries 95
(i)
(ii) Common Fisheries Policy (CFP) 96
(4) Energy 99
(5) Manufacturing 102
(i) Overview 102
(ii) Selected industries 104
(6) Services 109
(i) Overview 109
(ii) Financial services 111
(iii) Telecommunication and postal services 117
(iv) Transport 121
(v) Tourism 127
REFERENCES 129
APPENDIX TABLES 135
CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Direction of merchandise trade, 2000-05 10
I.2 Structure of merchandise trade, 2000-05 11
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Breakdown of applied MFN tariffs, 2006 44
III.2 MFN tariff distribution by ISIC sector, 2006 45
III.3 Tariff escalation by ISIC 2-digit industry, 2006 47
IV. TRADE POLICIES BY SECTOR
IV.1 EC tariff by ISIC classification, 2006 105
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected indicators, 2005 1
I.2 Key macroeconomic indicators, 2004-05 4
I.3 Growth in real GDP and expenditure components, 2001-05 5
I.4 Euro exchange rates, 1998-05 7
I.5 Trade in services, 2003-05 12
I.6 FDI inflows and outflows, 2003-05 13
II. TRADE AND INVESTMENT REGIMES
II.1 Selected EC notifications to the WTO, October 2006 26
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Structure of the EC MFN tariff, 2004-06 43
III.2 Items with problems of consistency between conventional and autonomous rates 43
III.3 Structure of the EC MFN tariff, by WTO sector, 2006 44
III.4 Summary analysis of EC applied MFN tariffs, 2006 46
III.5 National VAT rates in the EC 48
III.6 VAT exemption thresholds in the EC 49
III.7 Thresholds for excise duty exemptions on imports (for personal use)
from non-EC countries, 2005 50
III.8 Contingency measures notified by the EC 56
III.9 WTO Notifications of technical regulations by the EC and Member States, 1995-06 58
III.10 EC's emergency SPS measures 60
III.11 Minimum thresholds, mid 2006 62
III.12 Open procurement indicators, 2002-04 64
III.13 State aid in the EC, 2004 72
III.14 Statistics on trade marks and designs, 2000-06 74
III.15 Patent applications at the European Patent Office by bloc of origin, 1998-04 75
IV. TRADE POLICIES BY SECTOR
IV.1 Selected agricultural statistics, 2005 80
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IV.2 Agricultural area by main type of farming, 2005 81
IV.3 EC support for rural development, 2007-13 86
IV.4 Guarantee and guidance expenditure by
expenditure on agriculture, 2004 87
IV.5 Guarantee expenditure, by product, 2004-06 88
IV.6 Transfers associated with agricultural policies, 1986-05 89
IV.7 Production of cereals, 1999-04 91
IV.8 Total cereals market projections, 2005-12 92
IV.9 Beef and veal meat market projections, 2004-13 93
IV.10 Selected sugar indicators, 2005 94
IV.11 Tariffs and tariff quotas on fishery products, 2006 97
IV.12 Production and consumption of energy, 1998-02 100
IV.13 Main SME support programmes and instruments, 2000-06 104
IV.14 Main indicators of aerospace equipment manufacturing, 2002 106
IV.15 Selected telecommunications indicators, 2005 118
IV.16 Transport by mode, 1995-04 122
APPENDIX TABLES
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I. ECONOMIC ENVIRONMENT
AI.1 Exports by destination, 2000-05 135
AI.2 Imports by origin, 2000-05 136
AI.3 Structure of exports, 2000-05 137
AI.4 Structure of imports, 2000-05 138
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Selected State-Owned Enterprises in the EC 139
AIII.2 Applied MFN tariff averages by HS2, 2006 143
IV. TRADE POLICIES BY SECTOR
AIV.1 Overview of the implementation of the 2003 CAP reform, 2006 147
AIV.2 Applied MFN tariff, by ISIC Rev.2 category, 2006 149
(1) The Economic Environment
1. Following the economic slowdown in 2001-03, real GDP growth in the European Communities (EC) picked up to 2.3% in 2004, 1.7% in 2005, and an estimated 2.8% in 2006, mainly driven by private investment and exports. Growth rates in the ten new Member States (NMS-10) were above the EC average, contributing to income convergence. The economic recovery has translated into a decline of unemployment, to 8.8% in 2005, and an estimated 8% in 2006, and was accompanied by strong expansion of international trade. The ratio of public debt to GDP in the 25 Member States (EC-25) increased slightly, to around 63% in 2005 and 2006; thus, although some Member States improved their budgetary situation, measures to address the long-term sustainability of the public debt would appear to remain needed.
2. The euro is the common currency of twelve EC Member States. Sweden and the NMS-10 are expected to adopt the euro at a later stage, while
3. The services sector remains the backbone of the EC economy, with a share of over 77% in GDP and employment, while agriculture contributes just over 2%. The EC's share in global value-added in manufactures has been decreasing, reflecting geographical shifts in international processing activities and their vertical decomposition. The
4. EC exports and imports both grew at an average annual rate of some 10% in the period 2004-06. The EC's trade account has been in persistent but sustainable deficit. The EC current account turned from a small surplus in 2002 and balance in 2003 to a slight deficit in 2004 (0.1% of GDP); the deficit widened to some 0.9% of GDP in 2005 but narrowed again to an estimated 0.5% of GDP in 2006. The EC accounts for around half of global foreign direct investment (FDI) stocks, making it the world's largest recipient and supplier of FDI.
(2) Institutional Framework
5. There have been no substantive changes to the institutional framework of the EC since its previous review in October 2004. Ten countries acceded to the EC in May 2004, and
6. At the multilateral level, the EC is a key player in the WTO and very active in the DDA negotiations. In this context, the EC seeks improvements in market access for non-agricultural products on the basis of a non-linear formula that will cut the highest tariffs most and offer flexibility for developing countries; liberalization of agriculture according to the July 2004 Framework Agreement; further liberalization of the services sector; and incorporation of development priorities. The EC also remains one of the most active Members in WTO dispute settlement; as at November 2006, it was involved in 36 disputes, 18 as a complainant and 18 as a respondent.
7. The EC continues to build on a wide network of regional trade agreements (RTAs). In its RTAs with developing countries, liberalization is usually undertaken asymmetrically, with the EC liberalizing at a faster speed. The EC considers that its RTAs are part of a wider policy of promoting multilateralism; it recently announced its intention to launch new preferential trade negotiations, with market access as the main criterium.
8. The EC grants at least MFN treatment to all WTO Members, and unilateral preferences through its GSP scheme and the
9. The EC's extensive network of RTAs, together with the large number of countries eligible for unilateral preferences, has confined the application of its exclusively MFN tariff to nine WTO Members, which accounted for some 30% of its total merchandise imports in 2005.
(3) Trade Policy Instruments
10. The EC's MFN tariff has remained largely unchanged since its last TPR in 2004. The average applied MFN tariff has increased slightly, to 6.9% from 6.5%, due to increases in ad valorem equivalents (AVE) of non-ad valorem tariffs, as a result of a downward trend in import prices of certain agricultural products. By contrast, the average non-agricultural applied MFN tariff (excluding petroleum) is 4% (down from 4.1% in 2004). Non-ad valorem tariffs apply to some 10% of the tariff lines, mainly on agricultural goods; they comprise specific, compound, alternate, and variable duties. Applied MFN tariffs on agricultural goods (WTO definition) average 18.6% (up from 16.5% in 2004), with rates up to an AVE of 427.9%.
11. On aggregate, the EC tariff schedule shows mixed escalation, negative from the first stage of processing to semi-processed goods (because of the high tariff protection for agricultural commodities), and then positive to fully processed goods. Value-added tax and excise duties apply to imports and locally produced goods at the same rates; these rates are set by Member States and are not harmonized among the EC.
12. The EC is modernizing its customs administration through the implementation of electronic exchange systems to support the creation of a paperless customs environment. Customs controls are based on risk analysis using automated data processing techniques. Import prohibitions are generally based on international agreements, SPS regulations, or on resolutions of the United Nations Security Council. Technical regulations, standards, and sanitary and phytosanitary measures have been under continued review by the Commission; in certain areas, they have not been fully harmonized among Member States. Products placed on the market of a
13. The EC maintains import licences for surveillance, quota management, and safeguards purposes; 98 tariff lines, mostly agricultural goods, are subject to tariff quotas. The EC remains an important user of contingency trade remedies; between January 2004 and September 2006, it initiated three safeguard, 27 anti-dumping and two countervailing investigations. The EC provides export subsidies based on provisions laid down in product-specific common market organizations; such subsidies (mainly on agricultural products) though on the decline remain relatively high. In value, export subsidies notified by the EC represent approximately 90% of all the WTO Members' notified export subsidies. Assistance to exporters is also provided at the
14. New EC-wide legislation on public procurement entered into force in 2004, with a view to simplifying the legal framework and adapting it to the electronic era. The EC's competition policy seeks to enforce regulations on anti-competitive practices, and enhance competition. Enforcement focuses on the elimination of cartels and abuses of dominant position. New guidelines were adopted in 2006 on regional aid provided by Member States. The EC does not have any state-trading enterprises within the meaning of GATT Article XVII; there are numerous state-owned enterprises that engage in international trade.
15. The intellectual property rights regime is governed by both EC regulation and Member States' legislation. While no major change to the IPR regime has taken place since the last TPR of the EC, the Commission launched a review of patent policy in January 2006, focusing on, inter alia, the possible introduction of an EC patent. Various measures have also been taken to ensure more effective IPR enforcement.
(4) Sectoral Policies
16. Services constitute the EC's most important sector in terms of contribution to real GDP and employment. With a view to eliminating the remaining differences in regulation across Member States, the EC is taking steps to create a genuine internal market for trade in services by 2010. Since its last Review in 2004, the EC has taken measures to address some structural problems, notably the completion of the Financial Services Action Plan 1999-05; the launch of a new financial services strategy 2006-10; and the Action Plan for transport 2002-10. Further liberalization of services should improve the efficiency of other economic activities.
17. The manufacturing sector accounts for about 20% of the EC's GDP and for some three-quarters of its merchandise exports, and remains a major beneficiary of state aid. As a result of declining productivity growth in manufacturing, the Commission set out a new industrial policy in 2005, which, together with measures at
18. The EC is the world's largest energy importer, the second largest consumer, and is about 50% self-sufficient in energy. Faced with increasing oil prices, the EC is seeking to save 20% of its energy consumption by 2020 through, inter alia, the use of energy-efficient technologies, and has also set a target of 21% renewable electricity by 2010. Some of the key policy aims of the EC in the subsector are security of energy supply, promotion of competition, and completion of the internal market by 2007. Imports of electricity are duty free.
19. The EC is implementing the 2003 reform to its Common Agricultural Policy (CAP), mainly through the decoupling of payments from production; this has increased the exposure of farmers to world market signals. As a result, the combined share of market price support relating to output and input (those that are the most trade distorting) fell from 71.7% of support to producers in 2003 to 63.8% in 2005. The total amount spent on the CAP was 45.5% of EC expenditure in 2005. Using the ISIC definition, MFN tariffs in agriculture, hunting, forestry and fishing average 10.9%, with rates ranging up to 167.2%. Border protection and domestic support have somewhat insulated certain products from competition and helped to generate surpluses. The policy has thus made subsidies indispensable for the export of some of the surpluses. The ongoing reforms aim to redirect this policy.
(5) Trade Policy and Trading Partners
20. The EC pursues a strategy of trade liberalization through negotiations at the multilateral, regional, and bilateral levels. It considers the DDA as a key priority, having been fundamental in its launch and having made a large number of proposals in various areas. The EC's continuing commitment to the WTO will be essential to the successful completion of the DDA. Nonetheless, the decision by the EC to launch new PTA negotiations could further complicate its trade regime, and divert interest from the multilateral trading system.
21. The EC is the world's leading exporter and the second-largest importer of goods, and its economy has continued to support global growth by maintaining its market open.
Nevertheless, trade barriers remain substantial in a few but important areas, notably agriculture. Reduction/elimination of export subsidies and tariffs on agricultural imports would benefit EC consumers, improve resource allocation, and significantly contribute to the promotion of the world economy.
22. The EC remains the world's leading exporter and importer of commercial services. The Services Directive builds on the so-called "fundamental freedoms" of the EC Treaty, including the freedom of establishment and the free-movement of services. However, significant barriers to trade in services remain both at the intra-EC level and vis-à-vis third countries; these include monopolies and differences in regulation across Member States. Addressing these distortions would boost the overall competitiveness of the economy.
