WT/TPR/S/72 Trade Policy Review
Page 18
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
(1) INTRODUCTION
1. The European Union (EU) is increasingly focussed on its functioning as a political and
economic entity, on behalf of its 370 million citizens, in the post Cold-War political landscape and
globalized world economy.
2. The Treaty of Amsterdam revised the treaties to bring the Union closer to citizens.  Article 1
of the EU Treaty states that "decisions are [to be] taken as openly as possible and as closely as
possible to the citizen".  Parliamentary involvem ent in matters directly affecting consumers has
increased, as has the scope of qualified majority voting in the Council.  The EU has enunciated a new
policy of transparency and of consultation with civil society.
3. Employment is a priority objective for economic policy;  although the recovery of the
European economy has taken hold, unemployment rates remain high.  The passage to European
Monetary Union (EMU) on 1 January 1999 was achieved with the participation of 11 of the
15 Member States.  In the context of the enhanced business environment associated with EMU, the
EU is pursuing the completion of the Internal Market to improve the efficiency and functioning of
markets for goods, services and capital.  Job creation is to result from the improved competitivenessof European enterprises, their potential unlocked by the EU's external market access strategy.  This
core strategy is complemented by the European Employment Pact, implemented at the Member-State
level.
4. Preparations for enlargement to the east continued during the period under review.
Negotiations were formally opened in 1998 with five candidate countries and other applicants were
joined to the process in 1999. A working assumption of accession as of 2002 is contained in the
agreement on Agenda 2000 reached in 1999, which also continues the reform of the CommonAgricultural Policy (CAP).  The CAP, as well as  the other major Community programme of structural
operations, constitute a major challenge for enlargem ent.  The implications of enlargement for the
EU's institutions are to be resolved by the Intergovernmental Conference by the end of 2000.
5. The EU has taken a more proactive stance to advancing European business interests on third-
country markets through its market access strategy.  In the WTO, the Community is the single mostimportant user of the dispute settlement procedures to enforce rights arising from the Uruguay Round,
and is an advocate of a new comprehensive round of multilateral trade negotiations.  The reform of
the CAP agreed in 1999 sets the stage for the EU's pa rticipation in the negotiations in the WTO on the
continuation of the reform of agricultural policies, and the EU is also an active participant in the
services negotiations.  In its regional trade agreements, the Community is emphasizing conformity ofnew agreements with WTO rules, which has implied a greater reciprocity of market access
commitments, focussing preferential treatment more narrowly on the least developed countries and
GSP beneficiaries.  With major trading partners, the Community is reducing barriers to trade from
regulations and standards, mainly by promoting European standards and mutual recognition
agreements on the results of conformity assessment.The European Union WT/TPR/S/72
Page 19
(2) GENERAL FRAMEWORK
(i) Recent developments
6. The Treaty on European Union ("EU Treaty"), which came into force on 1 November 1993,
based the Union's activities on three "Pillars":
- Pillar One:  the European Communities (EC), comprising the European Coal and
Steel Community (ECSC), the European Economic Community (EEC), the EuropeanAtomic Energy Community (EAEC), and the subsequent Treaties and Acts modifying
or supplementing them, notably the Single European Act of 1987;
- Pillar Two:  common foreign and security policy (CFSP); and
- Pillar Three:  home affairs and justice.
7. An important development during the period under review is the entry into force on
1 May 1999 of the Treaty of Amsterdam, the result of the 1996 Intergovernmental Conference (IGC).
This IGC, unlike previous conferences, was concer ned primarily with the functioning of the Union
rather than major new integration initiatives.
1  Themes included bringing the Union closer to its
citizens, assuring the proper functioning of institutions in the light of enlargement, and developing theUnion's common security and foreign policy.
2
8. To bring the Union closer to its citizens, the Treaty of Amsterdam extended the range of
Community Acts under Pillar One requiring co-decision by the Council and European Parliament, as
well as the scope of qualified majority voting in the Council.  Co-decision covers the freedom of
movement of workers, the right of establishment, services, the internal market, the common transportpolicy, consumer protection, environment, and development cooperation;  notable exceptions continue
to be agriculture and indirect taxation.
3  To facilitate access of citizens to the legal foundations of the
Union, new consolidated versions of the EU Treaty and the Treaty establishing the European
Community (EC) were made available and are used in this Report;  unless otherwise stated, all
references are to provisions of the EC Treaty.4
9. The 1996 IGC considered but did not resolve the institutional issues that need to be settled
before enlargement, which are on the agenda of the IGC convened in 2000.  The key issues are the
size and composition of the European Commission, the weighting of votes in the Council, and the
possible extension of qualified majority voting in the Council.   The IGC is to complete its discussionsand adopt the amendments to be made to the Treaties by December 2000.
5
(ii) Legislative procedures
10. The main decision-making institutions of the European Community are the European
Parliament, the Council and the European Commission (Box II.1);  by design, the European Central
Bank is entirely independent from Community institutions and the Member States (Annex I.1).  The
Commission has the exclusive right of initiative for proposed Community Acts, which are subject to
                                                     
1 A retrospective database is available at:  http://europa.eu.int/en/agenda/igc-home/index.html.
2 Turin European Council, 29 March 1996, "Presidency Conclusions" [Online].  Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [23 July 1999].
3 European Parliament (1997).
4 European Communities (1997a).
5 Cologne European Council, 3 and 4 June 1999 and Helsinki European Council, 10 and
11 December 1999, "Presidency Conclusions" [Online].  Available at: http://ue.eu.int/en/Info/eurocouncil/
index.htm [15 March 2000].WT/TPR/S/72 Trade Policy Review
Page 20
the principles of subsidiarity and proportionality (Article 5).6  Acts are adopted either by the Council
alone, or by the Council and European Par liament through co-decision (Article 251).
Box II.1:  The European Parliament, Council, and Commission
The 626 Members of the European Parliament (MEPs) are directly elected by the 370 million citizens of
the EU every five years.  The first elections were held in 1979 and the latest in 1999.  These electionsresulted in the first political shift in the Parliament's 20-year history, with the largest single group beingthe center-right European Peoples Party (232 seats), followed by the European Socialists (180 seats), and
the remainder of seats held by the Liberal, Democrat and Reform Party, the Greens/European Free
Alliance, Union for a Europe of Nations, Europe of Democracies and Diversities, and the TechnicalGroup of Independent Members.
The European Council, composed of Heads of Stat e or of Government and the President of the
Commission, meets at least twice a year to give political direction to the Union.  Presidency of the
Council rotates between the Member States every six months.  Governments of the 15 Member States are
directly represented at the Ministerial level in the Council, the portfolio depending on the agenda(e.g. meetings of Ministers for economic and financial affairs are ECOFIN Councils).  The agenda isprepared by the Committee of Permanent Representatives (Coreper), except for Agricultural Councils,handled by the Special Committee on Agriculture (SCA).
The Council decides by a simple majority of its members (eight of 15 Members), unless a qualified
majority or unanimity voting rule applies to the matter under the relevant provision of the EC Treaty.
Under a qualified majority voting rule, the vote of each Member State is weighted:  ten each for France,Germany, Italy and the United Kingdom;  eight for Spain;  five each for Belgium, Greece, theNetherlands and Portugal;  four each for Austria and Sweden;  three each for Finland, Denmark andIreland;  and two for Luxembourg.   The qualified majority threshold is set at 62 votes of a total of87 votes if the decision is adopted on a Commission proposal and in other cases the 62 must include votes
in favour by at least 10 Member States (abstention is a vote against).  The "Ioannina Compromise",
adopted by a Council Decision in 1994, provides that if members of the Council representing a total of23 to 25 votes indicate their intention to oppose the adoption of a decision by qualified majority, theCouncil will endeavour to reach a satisfactory solution that can be adopted by at least 65 votes.
The Commission consists of 20 members, headed by a President, nominated by the Member States and
approved by the Parliament.  After approval by the Parliament, the President and the other members of the
Commission are appointed by common accord of the governments of the Member States.  The presentCommission, headed by Mr. Romano Prodi, was appointed to a term starting in September 1999 andending in January 2005, following the collective resignation of the Santer Commission on 15 March 1999in the wake of the First Report by the Committee of Independent Experts on Allegations regarding Fraud,Mismanagement and Nepotism in the European Commission.  The Prodi Commission adopted new rules
on the conduct of Commissioners at its inaugural meeting on 22 September 1999, and measures of
administrative reform, including a reduction in the number of Directorates-general;  these have also beenrenamed to reflect their activity areas.
Source : Council of the European Union (1997);  and European Commission (1999c).
                                                     
6 The "Protocol on the application of the principles of subsidiarity and proportionality" to the Treaty of
Amsterdam states that "Community action is justified when the objectives of the proposed action cannot besufficiently achieved by Member States' action in the framework of their national constitutional system and can
therefore be better achieved by action on the part of the Community", and "the Community shall legislate only
to the extent necessary".The European Union WT/TPR/S/72
Page 21
11. Community Acts are characterized as follows:
- a regulation has general application and is binding in its entirety and directly
applicable in all Member States (e.g., common market organization for cereals);
- a directive is binding upon each Member State to which it is addressed as to the
results to be achieved by a certain date, leaving the choice of form and method of
implementation to national authorities (e.g., Internal Market legislation);
- a decision  is binding upon the Member State/person to whom it is addressed; and
- recommendations and opinions have no binding force.
12. Legislation is implemented at the Community level or at the level of the Member State,
overseen by the Commission.  The Council may also delegate implementing powers to a Committee
of the Commission and the Member States – a pr ocess known as "comitology" – which functions
according to one of three procedures (Box II.2).  The European Court of Justice ensures that in the
interpretation and application of the EC Treaty the law is observed.  The Court of Auditors examines
the revenue and expenditure accounts of the Community to ensure the reliability of the accounts and
the legality and regularity of the underlying transactions, on which it reports annually to the European
Parliament and the Council.
Box II.2:  Advisory, management, and regulatory procedures
Council Decision 1999/47/EC (amending and repealing Council Decision of 13 July 1987) establishes the
options available for the exercise of implementing powers conferred by the Council as specified in the
basic legislative instrument.  In all cases, a Committee is composed of the representatives of the Member
States and chaired by the Commission's representative.  The Commission submits to the Committee adraft of the measures to be taken, on which the Committee delivers its opinion, voting (except in the caseof the advisory procedure and not including the vote of the chairperson) by qualified majority.
Under the advisory procedure, the Commission is required only to take account of the Committee's
opinion.  Under the management procedure, the Commission may adopt the measure with immediate
effect.  If, however, it is not in accordance with the opinion of the Committee, its application may be
deferred for up to three months.  In addition, the Commission communicates the measure to the Council,which may take a different decision by qualified majority.  Under the regulatory procedure, the
Commission may not adopt the proposed measure without a favourable opinion of the Committee.  In theevent of an unfavourable opinion or if no opinion is delivered, the Commission proposes the measure to
the Council and informs the Parliament, which may inform the Council of its position.  If the Council has
not adopted the measure or indicated its opposition within a certain time-limit, the Commission mayadopt the proposed measure.  In the case of the implementation of basic Acts adopted under the co-decision procedure, the Parliament may indicate in a Resolution that certain draft measures would exceed
the implementing powers provided for in the basic instrument (right of scrutiny).  In this case theCommission shall re-examine the measures.
The Commission will publish a complete list of committe es in 2000 and will issue annual reports on their
operation.
Source : Council Decision 1999/47/EC.WT/TPR/S/72 Trade Policy Review
Page 22
(iii) Trade and trade-related policy-making
13. The Community has exclusive competence over the common commercial policy (CCP) since
the establishment of the customs union in 1968.  This policy, established principally by Article 133 of
the EC Treaty (ex 113), covers "changes in tariff rates, the conclusion of tariff and trade agreements,
the achievement of uniformity in measures of liberalization, export policies and measures to protect
trade such as those to be taken in the event of dumping or subsidies".  The more limited provisions ofthe ECSC Treaty apply to coal and steel products
7, which is due to expire in 2002, at which time the
products are to be integrated into the EC Treaty.
14. On the basis of Commission proposals, the CCP is decided by the Council voting by a
qualified majority, except for definitive anti-dumping or countervailing measures where a simple
majority applies.  The Commission is advised by the "Article 133" Committee, composed of tradepolicy officials from the Member States and from th e Commission, and serviced by officials from the
General Secretariat of the Council, which also advises the Presidency;  the Presidency chairs the
Committee's proceedings.
8  The Committee's agenda typically includes Commission proposals or
documents relating to international trade negotiations, reports on negotiations, disputes, and specific
trade problems encountered by Member States.
15. In 1999, the Council provided the Commission with a negotiating mandate for the Third
WTO Ministerial Conference.9  In order to more closely integrate environmental protection
requirements in Community policies in accordance wi th Article 6 of the EC Treaty, a Sustainability
Impact Assessment (SIA) was carried out on the mandate for the pr oposed Mille nium Round.
16. Issues of competence periodically complicate the conduct of external economic relations for
the Community and its Member States.  In the WTO, they share competence on the GATS and TRIPS
Agreements, and while there is no strictly delimited division of competence, some issues currently fallunder the national competence of Member States.
10  The EU, however, acts as one, represented by the
Commission.  The Commission had proposed extendin g the common commercial policy to such "new
issues" in the 1996 IGC, but the Amsterdam Treaty provides that the Council may decide to do so, by
unanimity, for international negotiations and agreements on services and intellectual property, to the
extent that they do not already fall under the exclusive competence of the Community.
17. Although the European Parliament does not have a specified role in the CCP, its assent is
required under Article 300 for certain international agreements, including the WTO, and association
and cooperation agreements.  The Commission has a policy of informing and consulting the European
Parliament on all important issues in the trade policy area, which regularly comments on Commission
policy or proposals.
                                                     
7 Member States retain control over tariffs, quantitative restrictions and commercial agreements, and
the scope of the common commercial policy is principally limited to anti-dumping measures (Articles 71 and 74
of the ECSC Treaty).
8 Johnson (1998).
9 European Commission "Communication to the Council and the European Parliament: The EU
Approach to the Millennium Round", and "Preparation of the Third WTO Ministerial Conference: CouncilConclusions" [Online]. Available at: http://europa.eu.int/comm/trade/2000_round/position.htm
[15 November 1999].
10 European Court of Justice ruling 1/94, discussed in WTO (1995), Vol. 1, p. 13.The European Union WT/TPR/S/72
Page 23
(iv) Transparency and consultation of the public
18. Article 254 provides for the publication in the Official Journal of the European Communities
of regulations, directives, and decisions of the Council and European Parliament, as well as
regulations and directives of the Council or Commission addressed to all Member States;  other
Community Acts are notified to those to whom they are addressed.  A new provision, Article 255,
grants the public a right of access to documents of Community institutions, subject to limits for theprotection of public and private interests, which are to be determined by 2001.
11  In practice, access to
documents has been provided, subject to limits, by the Commission (including Committees) and the
Council since 1994, and by the European Parliament since 1997.12
19. The Commission consults with interested persons in various ways.  Special interest groups are
consulted through formal procedures such as advisory committees, or through structured proceduressuch as specific networks or associations, or informally on an ad hoc basis.
13  Last updated in 1998,
the Commission's directory of interest groups lists 800 European associations.14  With respect to trade
policy, in particular, the Commission consults with representatives of civil society, business, and trade
unions, both in horizontal meetings and sector-specific hearings;  a total of 16 such meetings have
been held since November 1998.  A "Green Paper" inviting comments from interested persons onpolicy options, including in public hearings, is another formal channel of consultation.  The
Commission provides information to the public on its legislative intentions through "White Papers"
and its annual work programme, and "Communications" contain proposals to the Council and
European Parliament.
20. Another dimension of openness is public access to information on deliberations in the
institutions of the Community.  The European Parliament conducts its formal debates in public.  The
meetings of the Council are not public, and deliberations are covered by the obligation of professionalsecrecy, unless the Council decides otherwise by the appropriate voting rule.  However, the Council
periodically holds public debates, discloses votes when acting as a legislator and, in general, discloses
the provisional agendas, minutes, and statements of its meetings when adopting legislative acts.
15  The
meetings of the Commission are not public and discussions are confidential.16
21. The European Parliament appointed in 1995 the first European Ombudsman.  The
Ombudsman accepts petitions alleging maladministration in the activities of the Community
institutions and bodies, with certain exceptions and excluding activities at the national level or in
international organizations.   In 1998, the Ombudsman handled 1,617 cases;  no maladministration
was  found in 52% of cases, and in 45% of cases, either the institution settled the matter, an amicable
settlement was found or the case was closed with a critical remark.17
                                                     
11 COM(2000) 30 final.
12 "93/730/EC:  Code of  conduct concerning public access to Council and Commission documents";
"93/731/EC:  Council Decision of 20 December 1993 on public access to Council documents", "94/90/ECSC,
EC, Euratom: Commission Decision of 8 February 1994 on public access to Commission documents","Decision of the European Parliament of 10 July 1997 on public access to European Parliament documents".
See also European Commission, Secretariat-General (1997).
13 European Commission's Communication of 2 December 1992, "An open and structured dialogue
between the Commission and special interest groups.
14 European Commission, Secretariat-General (1998).
15 Council of the European Union (1997), Vol. I, pp. 8-13.  These rules are now codified in Article 207
of the EC Treaty.
16 "Rules of procedure of the Commission" (OJ L 252, 1999).
17 The European Ombudsman (1999).WT/TPR/S/72 Trade Policy Review
Page 24
22. The Europa server (http://europa.eu.int/) provid es information on the institutions of the EU,
policies, news, and official documents, and has been expanded considerably during the period under
review.
(3) OBJECTIVES OF ECONOMIC AND TRADE POLICY
(i) Internal Market
23. In 1987, the Single European Act came into force, with the target date of 1 January 1993 for
the Internal Market.  All customs controls were then  removed within the territory of the EU.  A series
of studies in 1996 led the Commission to conclude that some barriers were still in place18;  the
Commission's Action Plan for the Single Market was endorsed by the Amsterdam European Council
in June 1997 and expired in December 1998.19  The Commission's new five-year strategy was
endorsed by the Helsinki European Council in December 1999.20
24. The Action Plan's first target was to make the existing rules more effective by ensuring a full
transposition of the 1,441 Internal Market Directiv es in all Member States by 1 January 1999.  As of
November 1999, some 12.6% (a total of 182) had not been implemented in all Member States, with
problems noted for veterinary checks and transport, and for Greece and Luxembourg (Table II.1).21
The number of infringement proceedings continued to be high (Box II.3), although most proceedings
continued to be closed without referral to the Court.  As well as non-implementation, the Commission
is concerned by incorrect implementation or incorrect application of the Internal Market rules.  The
Commission has also focused on the elimination of unnecessary regulatory burdens on business,
following the Simpler Legislation for th e Internal Market (SLIM) methodology.22
Table II.1
Breakdown by area and Member State of non-transposed Directives
**** BEL DNK DEU GRC ESP FRA IRL ITA LUX NLD AUT PRT FIN SWE GBR
V e t e r i n a r y  c h e c k s  ( 2 0 7 ) 3 6455 2 4 1 1 2 7 1 8 1 3 1 49 1 5745 1 1
T r a n s p o r t  ( 6 4 ) 3 2725 1 24 1 0 1 19 1 986 1 8475
M o t o r  v e h i c l e s  ( 1 5 6 ) 1 3 1 01291367 1 051 1 3763
C h e m i c a l  p r o d u c t s  ( 8 1 ) 1 2536523311455243
Plant-health checks (180) 1 2314943 -3 1 0386122
E n v i r o n m e n t  ( 9 2 ) 1 0624734333133124
S o c i a l  p o l i c y  ( 3 9 ) 1 01 - -1 -3154 -3 ----
Food legislation (106) 9 1 - 4523731133 - -1
T e l e c o m m u n i c a t i o n s  ( 1 7 ) 741 -2 -4131 - -1 - -2
Intellectual and industrial
property (8)4 -111114 -21 -1 - -1
P u b l i c  p r o c u r e m e n t  ( 1 1 ) 4 - -2312 -12 -22 - -2
- Negligible.
**** Number of non-transposed Directives.(#) Total number of Directives concerned in each sector.
Source : European Commission, DGXV (1999a), No. 5, p. 8.
                                                     
18 European Communities (1996a).
19 CSE(1997) 1 final, 4 June 1997.
20 COM(1999) 624 final.
21 European Commission, DGXV (1999a) No. 5.
22 COM(1996) 559 final;  COM(1997) 618 final;  and COM(1999) 88 final.  A SLIM team submits
views to the Commission on the simplification of the legislation, which can then be proposed by the
Commission to the Council.The European Union WT/TPR/S/72
Page 25
Box II.3:  Enforcement of Community law by the infringement procedure
Article 226 (ex 169) provides a basis for action by the Commission against an alleged failure by a
Member State to fulfil its obligations under the EC Treaty, including the possible referral of a complaintto the European Court of Justice;  a more specific pr ocedure applies to state aids under Article 93(2).  In
practice, the Article 226 procedure provides for a dialogue between the Commission and the MemberState concerned with a view to ensuring compliance rather than sanctioning non-compliance.
The Commission provides formal notice of an infringe ment procedure to a Member State by an "Article
226 letter", inviting its comments on its alleged breach of Community law.  In most cases, the reply fromthe Member State allows the case to be closed.  Ho wever if the Commission considers that the breach of
Community law persists, it delivers a reasoned opinion  to the Member State, inviting the latter to react.
After examining the reply, the Commission may decide to refer the case to the Court of Justice.
The Court of Justice is empowered to rule definitively that a breach of Community law has occurred.
When a Member State has been found to have fail ed to fulfil its obligations under Community law,
Article 228 (ex 171) of the EC Treaty requires it to implement the judgment of the Court.  Alleged failureto do so may lead the Commission to begin a further infringement procedure, under Article 228, whichmay lead to a second referral to the Court, including a request for monetary penalties.
Source : European Commission, DGXV (1999a) No. 4;  and COM(1999) 301 final.
25. In addition to monitoring the implementation of existing legislation, the Community took
initiatives during the period under review to enhance the efficiency of goods, services, and capital
markets.  These concern removing technical obstacles to trade, preventing harmful tax competition,and the liberalization of services.  The Commission's new five-year strategy for the Internal Market
contains proposals to complete its legislative foundation by the Financial Services Action Plan, by
establishing a regulatory framework for e-co mmerce, adopting a Community-wide intellectual
property rights protection regime, and further liberalizing transport services.  Internal Market policy is
also increasingly concerned with effective implementation of the existing legislative framework.  TheCommission also polices anti-competitive practices of undertakings on Community markets, enforces
rules on state aids, and aims to open government procurement to greater competition.
(ii) Agenda 2000
26. In June 1993, the Copenhagen European Council decided that the Central and Eastern
European countries (CEEC) that were associated by Europe Agreements could become members ofthe European Union, if they so desire and as soon as they are able to fulfil the necessary conditions.
23
In July 1997, the European Commission submitted Opinions to the European Council, in accordancewith Article 49 (ex Article O) of the EU Treaty, on the applications for membership of Bulgaria, the
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia;  the
opinion on Turkey was issued in 1989 and on Cyprus and Malta in 1993.
27. Negotiations on accession were formally opened in March 1998 with Cyprus, the Czech
Republic, Estonia, Hungary, Poland, and Slovenia ("old ins") and, following the conclusions of the
                                                     
23 These conditions are:  stability of institutions guaranteeing democracy, the rule of law, human rights
and respect for and protection of minorities;  the existence of a functioning market economy, as well as theability to cope with competitive pressures and market forces within the Union;  the ability to take on the
obligations of membership, including adherence to the aims of political, economic and monetary union ( acquis
communautaire)  (DOC/97/8 of 15 July 1997).WT/TPR/S/72 Trade Policy Review
Page 26
Helsinki European Council in December 1999, negotiations were opened in February 2000 with
Bulgaria, Latvia, Lithuania, Malta, Romania, and Slovakia ("new ins").24  Prior to the negotiations
themselves, the applicant country is engaged in an exercise conducted by the Commission of
"screening" on the  acquis communautaire , both the extent to which it is transposed by the applicant
and its implementation.  This exercise enables negotiation chapters to be opened, normally starting
with the easiest,  and then provisionally closed w ith the applicant;  to date, Cyprus has closed 11
chapters, the Czech Republic closed 10, Hungary, Poland and Slovenia closed nine, and Estonia
closed eight.  The Commission issued annual reports on the progress towards accession of each of the
13 candidate countries in 199925, and new reports are to be issued at the end of 2000.
28. The EU is engaged in the process of considering and resolving the implications of
enlargement for major Community programmes and the functioning of the EU's institutions.  The two
major Community programmes of the Common Agricultural Policy (CAP) and structural operations
constitute a major challenge for enlargement.  The overall agreement on Agenda 2000 reached at the
Berlin European Council in March 1999 is based on the working assumption of the accession of new
Member States starting from 2002, and contains a reform of the CAP (Chapter IV(2)(ii)(b)).26  The
Intergovernmental Conference convened in 2000 is considering the implications of enlargement for
the EU's institutions (section (2)(i)).
(iii) Market access strategy
29. The core strategy of the Internal Market is  complemented by the Community's outward-
looking market access strategy on world markets, launched in 1996.  The Commission has stated that:
…open markets world wide are one of the keys to securing faster growth and more
rapid job creation in Europe. If European industry is to reap the full benefits of
improved competitiveness policies at home and take advantage of the economies ofscale that operating in an increasingly integrated market would imply, the European
Union must shape its approach to international economic relations with a view to
improving the climate in which European firms operate.
27
30. The Commission also notes that "market opening is likely to be accompanied in the years
ahead by increasingly competitive pressures from imports on the Community market and, as in the
past, by the problems and frictions inherent in any restructuring process".  According to the
Commission, requests for protection or government support should be evaluated against the greater
growth potential of an outward-looking market access strategy.
31. The market access strategy comprises several stages.28  In the first stage, the Commission
catalogued barriers to trade on third country markets in the Market Access Database
(http://mkaccdb.eu.int), which also provides exporters with information on WTO commitments and
on import formalities in export markets.  The barriers include tariff and non-tariff barriers to trade in
goods, as well as services and the protection of intellectual and industrial property rights.  The Article
133 Committee, as part of its responsibility in the development of the common commercial policy,
                                                     
24 European Commission Memo/00/6 of 8 February 2000 [Online].  Available at:
http://europa.eu.int/rapid/star t/cgi/ [16 March 2000].  Note that Turkey is considered as a candidate country.
25 European Commission, Enlargement (1999).
26 Berlin European Council, 24 and 25 March 1999, Presidency Conclusions [Online].  Available at:
http://ue.eu.int/en/Info/eurocouncil/index.htm [15 March 2000].
27 COM(1996) 53 final.
28 European Commission, Trade (1999).The European Union WT/TPR/S/72
Page 27
provides advice to the Commission on the implementation of the market access strategy.  The
Committee identifies priority barriers with a view to maximizing economic benefit, and these may be
addressed by diplomatic or formal processes, multilateral or bilateral approaches.
32. Obstacles to trade may also be challenged directly by a Community industry, enterprise or
Member State by lodging a complaint under Regulation 3286/94, the "Trade Barriers Regulation"
(Box II.4).  These complaints are examined by the Trade Barriers Regulation Committee, which alsokeeps the Article 133 Committee apprised of developments in TBR cases.
Box II.4:  The complaint procedu re under the Trade Barriers Regulation
Complaint  lodged with Commission
/g223
Commission rules within 45 days on admissibility  of complaint after consulting Member States,
and initiates examination procedure
/g223
Commission conducts investigation  on admissible complaint and reports to Member States
/g223
No action  required.  Procedure terminated
OR
Satisfactory steps  taken by country.  Procedure suspended and implementation monitored by
Commission
OR
Agreement  with country recommended.  Procedure suspended to allow negotiations.
OR
Initiation of the WTO dispute settlement procedure
AND
If the third country fails to implement conclusions, the Commission seeks the authorization of the DSB,
and proposes to the Council retaliatory measures , which can be adopted by qualified majority within
30 working days.
Source: European Commission, DGI (1999).
33. In the WTO, the Community increased its recourse to dispute settlement to pursue the
reduction of barriers to exports or other economic interests on third-country markets
(section (4)(i)(b)).  Bilaterally, the Community is re-negotiating its preferential trade agreements withdeveloping countries to provide a greater degree of reciprocity in market access commitments, and
plans to conclude others with emerging markets out side Europe, such as in Latin America.  The EU
also plans to negotiate agreements providing a greater degree of reciprocity with countries currently
members of the Partnership Agreement of Suva, successor to the Fourth Lomé Convention.  Non-
reciprocal access under the Community's development policy is to be more narrowly focused on least
developed countries and GSP beneficiaries.WT/TPR/S/72 Trade Policy Review
Page 28
34. The Community is actively consulting with its largest trading partner, the United States, on
WTO matters, including areas of common interest or dispute, and promoting initiatives to improve the
business environment;  similar initiatives are in place for trade and economic relations with Japan and
other major trading partners.  With the United States, the New Transatlantic Marketplace (NTM) was
launched in 199529, and involves the business community through the Transatlantic Business
Dialogue (TABD) – an informal  network of European and Am erican companies and business
associations (http://www.tabd.com) – and other non-governmental constituencies through the
Consumer and Environment Dialogues (TACD, TAED ).  The NTM also draws on the Transatlantic
Legislators Dialogue, in which members of the European Parliament and U.S. Congress participate.
Notable areas of activity include the mutual recognition agreement (MRA) on the results of
conformity assessment (section (4)(iv)), customs cooperation, and cooperation on science andtechnology.
35. The NTM was followed in 1998 by the Transatlantic Economic Partnership (TEP).
30  T h e
TEP's bilateral initiatives address the regulatory ba rriers that constitute the main obstacles to the
development of transatlantic business relations, while preserving a high level of protection for health,
safety, consumers, and the environment.  Key areas include MRAs in goods and services (e.g., aproject is considering mutual recognition of professional qualifications of architects, insurers, and
engineers), government procurement, intellectual property rights, and increased regulatory and
scientific cooperation on issues related to consumer and plant health, biotechnology, and the
environment.  Building on the NTM and TEP, the EU and the United States agreed in June 1999 on a
set of principles to strengthen their capacity to manage their differences and facilitate conflict
resolution at an early stage.
(4) E
XTERNAL TRADE RELATIONS
(i) WTO
(a) Participation in the WTO
36. The EU and the Member States joined the WTO as founding Members on 1 January 1995,
and the "plurilateral" Agreements on Trade in Civil Aircraft and on Government Procurement,
coinciding with the enlargement of the EU to Austria, Finland and Sweden.  The three new MemberStates assumed Community policies, including the common commercial policy (within certain
transitional periods).  The commitments assumed by  the EU-12 in the Uruguay Round were therefore
consolidated with those of its new Members, and consolidation was also required of the commitments
of WTO Members with respect to the EU, requiring renegotiations under GATT Article XXIV:6.
37. Tariffs on all lines are bound in Schedule CXL.  On agricultural products (WTO definition),
the EU is reducing levels of bound tariffs by 36% on average, with a minimum reduction of 15% per
line, during the implementation period of July 1995 to July 2000;  the EU has reintroduced tariffs on
certain products through the special safeguard prov ision (Chapter III(2)(vii)).  The EU also made
current and minimum market access commitments in the form of tariff quotas, and has bound and
pledged to reduce the Aggregate Measurement of  Support (AMS) and the value and volume of
subsidized exports (Chapter IV(2)(ii)(b)).
                                                     
29 A complete set of documents is available at http://europa.eu.int/comm/dg01/infus3b.htm.
30 A complete set of documents is available at http://europa.eu.int/comm/dg01/infus6a.htm.  See also
COM(1998) 125 final.The European Union WT/TPR/S/72
Page 29
38. With respect to non-agricultural products (WTO definition, excluding petroleum), the base
rate of duty was 6.9% as of 1995, to be reduced to 4.1% upon implementation of Uruguay Round
commitments.  As of 1 January 2000, the EU had also eliminated tariffs in line with the agreements
reached at the Singapore Ministerial Conference in 1997 on products covered by the "Information
Technology Agreement" (ITA), on pharmaceutical products, and with the United States on spirituous
beverages.31  The implementation of the ITA is, in particular, to reduce the simple average tariff on
non-agricultural products to 4%.
39. Due to the EU's numerous preferential trade agreements and arrangements, exclusively MFN
treatment applies only to imports from eight WTO Members:  Australia, Canada, Japan, New Zealand
and the United States throughout the period under review, and Hong Kong, China;  the Republic of
Korea; and Singapore as of May 1998, upon their graduation from GSP (section (4)(iii)).
40. The EU maintains quotas under the WTO Agreement on Textiles and Clothing (ATC), which
were carried over from the longstanding Multi-Fibre Arrangement.  Growth rates were increased by
16% on 1 January 1995 and by 25% on 1 January 1998;  higher growth rates have applied to small
suppliers.  The EU has pledged to bring into the multilateral rules all covered imports (in 1990) of
textile and clothing products by the end of 2004:  integration affected 16.2% of imports in 1995 and17.11% in 1998.  To date, the EU's integration has resulted in the liberalization of 5.4% of imports
restricted in 1990 (Chapter III(2)(vi)(d)).  The EU  also completed during the period under review the
removal of quantitative restrictions on certain products introduced or maintained under Article XIX of
GATT 1947, as well as the "consensus" with Japan on imports into the EU of motor vehicles of
Japanese origin, under the WTO Agreement on Safeguards (Chapter III(2)(vii)).
41. The main changes made by the EU to its legislative framework on the use of trade policy
instruments occurred in the areas of anti-dumping, countervailing and safeguard measures(Chapter III(2)(xi)).  Substantive changes were  not found necessary for product regulations and
standards due to the Internal Market (Chapter III(2)(viii)), and minor changes were made to the
framework for government procurement (Chapter III(2)(ix)).
42. The EU's GATS Schedule of Specific Commitments (GATS/SC/31), assumed in the Uruguay
Round, "was a function of progress in the creation of the Single Market, and consisted of translatingits internal achievements in this field to the multilateral stage".
32  These commitments were
supplemented by those on basic telecommunications and financial services (GATS/SC/31/Suppl. 3
and GATS/SC/31/Suppl. 4, respectively), where negotiations were completed after the entry into force
of the WTO.  As a result, the EU's commitments cover almost all service sectors, with the exception
of the audio-visual sector33, and maritime and air transport services are excluded to the extent
provided for by the GATS (Chapter IV(4)).  Th e EU's list of GATS Article II (MFN) exemptions
(GATS/EL/31) relate to audio-visual services, transportation services, and subsidies.
43. With respect to commitments on the protection of intellectual property rights under the TRIPS
Agreement, the Community implemented the requirements on the protection of designations of origin,
                                                     
31 "Agreement on spirituous beverages" (OJ L 155, 1997).  On the part of the Community, the
Agreement provides for the elimination of duties by 1 January 2000 for the listed HS 96 headings, and by1 January 2003 for rum and taffia.
32 COM(1994) 414 final, p. 7.
33  The Commission noted that "the characteristics of audiovisual services are different and more
complex than those of other services.  This is mainly due to the intrinsic nature of the service itself, whose
content is a mixture of commercial, technological, cultural and political (freedom of information) parameters
and specificities."  (WTO, 1995, Vol. 2, p. 57.)WT/TPR/S/72 Trade Policy Review
Page 30
amended the relevant Community Acts on trade marks and layout designs of integrated circuits, and
introduced new provisions on enforcement at the border.  The Member States have also assumed the
translation into their national legislation of TRIPS commitments, where applicable.
44. Since the entry into force of the WTO, the EU has completed its notification obligations;  in
principle, all documents are submitted as unrestricted and are therefore available to the public.
Notifications concern legislation on covered measures as well as regular reports on developments inthe use of covered instruments, as mandated under the various Agreements (Table AII.1).  The EU has
also notified the WTO of its customs union and free-trade agreements for examination by the
Committee on Regional Trade Agreements (Table II.2).  The EU notifies its applied most-favoured-
nation tariff (the latest is for 1999) to the Integrated Database (IDB).
45. Actions in the WTO aimed at further improving the international business environment for
European firms include:  liberalization initiatives;  negotiations with newly acceding Members;
participation in the WTO work programmes;  and preparations for Ministerial Conferences.
(b) WTO dispute settlement proceedings
34
46. The EU has been involved in just under half of all requests for consultations under the WTO
dispute settlement proceedings since 1995:  it has initiated 47 of the 183 requests, and is a respondentin 39 complaints.  Most complaints do not proceed to the panel stage of the procedures.
47. Some of the EU's complaints in the WTO have resulted from the Trade Barriers Regulation
(TBR)
35 and others are third-party complaints to preserve the EU's rights (Table AII.2).  The United
States is the trading partner most often concerned by the EU's complaints, followed by India, Japan,
and Argentina.  The complaints initiated by the EU have involved, for example, the use of trade
defence instruments, market access for agricultural products, as well as regimes to attract investment
in the automotive products sector.
48. The EU also uses the WTO dispute settlement system to address measures that are perceived
to undermine the multilateral trading system.  Thes e complaints have, to date, involved only the
United States.  The EU initiated a complaint on the "Helms-Burton" Act, which the Commission
stated "represents an unwarranted interference by the U.S. with the sovereign right of the EU to
legislate over its own citizens and companies";  a solution was found.36  The EU has also complained
against the United States' proposed or enacted retaliatory measures against imports from the EU in the
"bananas" case, as well as the domestic legislative framework for their enactment in Sections 301-310
of the 1974 Trade Act.37
                                                     
34 Information compiled as of 11 November 1999, based on WTO (ongoing).
35 The complaints lodged under the TBR and accepted by the Commission, which are addressed by
recourse to the WTO Understanding on the Rules and Procedures for the Settlement of Disputes (DSU) requirethe authorization of the Dispute Settlement Body for retaliatory measures.  Of the 15 TBR complaints examinedto date by the Commission, six led to complaints in the WTO, on which three led to the establishment of a panel(WTO documents WT/DS60, WT/DS160, and WT/DS155).
36 European Commission, DGI (1997).
37 WTO documents WT/DS/39, WT/DS165, and WT/DS152/1.The European Union WT/TPR/S/72
Page 31
Table II.2
Preferential trade agreements of the European Union, 1999
Participants Entry into force GATT or WTO
document
Customs unions
Andorra 1 January 1991 WT/REG53/
Malta 1 April 1971 L/3665, 19S/90
San Marino 1 December 1992 -
Turkeya12 September 1963
1 January 1996L/3750, 19S/102
WT/REG22/
Free-trade areas
Bulgariab1 January 1997 WT/REG1/
Czech Republicb1 March 1992 WT/REG18/
Cyprusa1 June 1973 L/4009, 21S/94
Estoniab1 January 1995 WT/REG8/
Faroe Islands 1 January 1997 WT/REG21/
Hungaryb1 March 1992
1 February 1995WT/REG18/
WT/REG50
Icelandc1 April 1973 L/3902, 20S/158
Latviab1 January 1995 WT/REG7/
Lithuaniab1 January 1995 WT/REG9/
Liechtensteinc1 January 1973 L/3893, 20S/196
Norwayc1 July 1973 L/3996, 21S/83
Romaniab1 May 1993 WT/REG2/
Palestinian Authority of the West BankdWT/REG43/
Polandb1 March 19921 February 1995WT/REG18/
WT/REG51/
Slovakiab1 March 19921 February 1995WT/REG18/
WT/REG52/
Sloveniab19 July 1993 WT/REG32/
South Africa 1 January 2000
Switzerlande1 January 1973 L/3893, 20S/196
Fourth Lomé Convention
Angola, Antigua and Barbuda, Bahamas, Barbados, Belize, Benin, Botswana, Burkina Faso, Burundi,Cameroon, Cape Verde,  Central African Republic, Chad, Comoros, Congo, Cote d'Ivoire, Djibouti,
Dominica, Dominican Republic, Equatorial Guinea, Ethiopia, Fiji, Gabon,  Gambia, Ghana, Grenada,Guinea,  Guinea-Bissau, Guyana, Haiti, Jamaica, Kenya, Kiribati, Lesotho, Liberia, Madagascar,Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria,  Papua New Guinea,Rwanda, St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, Sao Tome and Principe,Senegal, Seychelles, Sierra Leone, Solomon Islands, Somalia, Sudan, Suriname,  Swaziland,  Tanzania,Togo, Tonga,  Trinidad and Tobago, Tuvalu, Uganda, Vanuatu,  Western Samoa, Zaire,  Zambia,Zimbabwe.1 March 1990 L/7502, 41S/125
Association with certain non-European countries and territories (PTOM) II
Comoros Archipelago, French Polynesia, French Somali Coast, Southern and Antarctic Territories,
Mayotte, New Caledonia and Dependencies,  St. Pierre and Miquelon, Suriname, Wallis and FortunaIslands,  Netherlands Antilles.1 January 1971 L/3611, 18S/143
Non-reciprocal access to the EC
Algeria 1 July 1976 L/4559, 24S/80
Egyptd1 July 1977 L/4660, 25S/114
Israeld1 July 1975 L/4365, 23S/55
Jordand1 July 1977 L/4559, 24S/80
Lebanon 1 July 1977 L/4663, 25S/142
Moroccod1 July 1976 L/4560, 24S/88
Syria 1 July 1977 L/4661, 25S/123
Tunisiad1 July 1976 L/4558, 24S/97
a Forerunner to possible accession.
b Europe Agreement, forerunner to possible accession.
c European Economic Area (EEA).
d Euro-Mediterranean association agreement signed.
e Bilateral agreements of EEA type.
Source : WTO Secretariat.WT/TPR/S/72 Trade Policy Review
Page 32
49. In the cases where the EU is a respondent (Table AII.3), the United States is a complainant in
two thirds of all cases, confirming the important role of the WTO dispute settlement procedures in
EU-U.S. relations.  Although cases have for the most part been settled by consultations, two cases –
"bananas" and "hormone-treated beef" – have been highly contentious.  Significant problems for the
EU in implementing panel or Appellate Body rulings have led to retaliation against EU exports38;
these are the first and only instances of retaliation authorized by the WTO to date.  The EU doeshowever recognize that efforts toward ensuring that WTO trading partners comply with their
obligations must be accompanied by its own rigorous compliance with the agreements.
39
(ii) Preferential trade agreements
(a) Members of the European Free Trade Association (EFTA)40
50. The Community's free-trade agreements with i ndividual members of EFTA, concluded in the
early 1970s, remain in force for Iceland, Liechtenstein, Norway, and Switzerland.  The agreements
cover industrial products and include concessions on agricultural and fishery products.
51. The European Economic Area (EEA) entered into force on 1 January 1994 and extends the
Internal Market to Iceland, Liechtenstein, and Norway.  The EEA provides for the freedom of
movement of goods, persons, services, and capital throughout the territory of the Contracting Parties,as provided for under basic EU legislation.  The EEA Joint Committee adopts, by decision, new EU
legislation on the Internal Market, for transposition by Iceland, Liechtenstein, and Norway.  In
addition, the EU's competition policy framework applies (except for agriculture and fisheries).
52. Switzerland did not ratify the EEA in a re ferendum held in 1992.  The Community and
Switzerland concluded seven bilateral agreements in December 1998 on land-based transport, air
transport, the free movement of people, agriculture, research, procurement, and technical barriers to
trade, which are scheduled to come into force in 2001 following their ratification.
(b) Countries in transition
53. Following the start of the transition to the market economy in Central and Eastern European
countries, the Community concluded Europe Agreements with Bulgaria, the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.  All the Europe Agreement
countries have since requested accession to the European Union (section (3)(ii)).
54. The trade provisions of each Europe Agreement commit the parties to eliminate tariff and
non-tariff barriers on industrial products by the end of  a transition period of ten years, according to a
liberalization schedule that is faster for the EU than for the other party; agricultural products are
                                                     
38 Concerning the EC regime for bananas, Article 22 of the DSU was invoked by the United States to
request DSB authorization to suspend tariff con cessions on products of a value of US$191.2 million
(WT/DS27/49), and by Ecuador to request authorization to suspend TRIPS obligations (WT/DS27/52), in whichthe arbitrator decided the value of nullification or  impairment to be US$201.6 million (WT/DS27/ARB/ECU).
Concerning EC measures affecting meat and meat products, Article 22 of the DSU was invoked by the
United States to request DSB authorization to suspend tariff concessions on products of a value ofUS$116.8 million (WT/DS26/21), and by Canada to reques t authorization to suspend tariff concessions on
products of a value of Canadian $11.3 million (WT/DS48/19).
39 COM(1996) 53 final.
40 Established in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the
United Kingdom.  EFTA's membership has been diminished by accession to the EC of Denmark and the
United Kingdom in 1973, Portugal in 1986, and Austria, Finland, and Sweden in 1995.The European Union WT/TPR/S/72
Page 33
subject to preferential treatment under tariff quotas (Chapter III(2)(iv)).  The EC accelerated its
liberalization schedule on industrial products for all Europe Agreement countries at the Copenhagen
European Council in June 1993, and removed all quantitative restrictions on imports of textile and
clothing products on 1 January 1998.  The Europe Agreement countries are to complete their bilateral
liberalization schedules by 2001 for the Czech Republic, Hungary, Lithuania, Slovakia, and Slovenia,
and 2002 for Bulgaria, Latvia, Poland, and Romania.
55. The Europe Agreement also commits the party from Central and Eastern Europe to
approximate "customs law, company law, banking law, company accounts and taxes, intellectual
property, protection of workers at the workplace, social security, financial services, rules on
competition, protection of health and life of humans, animals and plants, nuclear law and legislation,
consumer protection, indirect taxation, technical rules and standards, transport and the environment".These commitments have formed the basis of pre-accession strategies of applicant countries.
41
56. A recent development in trade relations between the EU and the Europe Agreement countries,
and more generally among European countries having concluded free-trade agreements with the EU,
is the introduction of the System of European Cumulation of Origin, in 1997 (Chapter III(2)(iii)).42
(c) Mediterranean countries
57. In November 1995, the "Euro-Mediterranean Partnership" was launched in Barcelona
between the EU and Algeria, Cyprus, Egypt, Israel , Jordan, Lebanon, Malta, Morocco, the Palestinian
Authority, Syria, Tunisia, and Turkey.  The partnership includes the establishment of a Euro-
Mediterranean free-trade area by 2010, to foster the development of countries in the region.43  To this
end, the EU concluded "Euro-Mediterranean" associ ation agreements with Israel, Jordan, Morocco,
the Palestine Liberation Organization (for the benefit of the Palestinian Authority of the West Bank
and Gaza Strip), and Tunisia;  an agreement at negotiator's level was reached with Egypt in 1999.Entry into force has taken place for the Agreements with Tunisia and Morocco and, on a provisional
basis, for those with Israel and the Palestinian Authority.
58. The "Euro-Mediterranean" agreements are distinguished from predecessor agreements by the
greater degree of reciprocity in market access commitments.  Each provides for the establishment of a
bilateral free-trade area, covering industrial products and including concessions on certain agriculturaland fishery products.  An asymmetric liberalization schedule applies, shorter for the EU, with a
transitional period to full implementation of 12 years for the developing country partner, except for
Israel, which has immediate effect.
                                                     
41 In addition, applicant countries have implemented the Council of Europe's Convention on
Transfrontier Television and the EC's Television Broadcasting Directive, which requires time allocations forworks of European origin.  The countries did not schedu le commitments on audio-visual services in their GATS
Schedules, and have MFN exemptions of an indefinite duration (except for Romania).
42 WTO documents WT/REG1, 2, 12, 15, 16/N/1;  WT/REG7-9, 20, 28-30, 32-35/N/2, 37, 41 42, 45-
48, 62/N/2;  WT/REG18/N/3;  and WT/REG11/N/4.
43 COM(1994) 427 final.WT/TPR/S/72 Trade Policy Review
Page 34
(d) African, Caribbean and Pacific (ACP) States
Partnership Agreement of Suva
59. The Partnership Agreement between the African, Caribbean and Pacific (ACP) States and the
EU entered into force on 1 March 2000, and is to be signed in Suva, Fiji.  The Partnership Agreement
of Suva replaces the Fourth Lomé Convention, which expired at the end of February 2000.  Of the
71 ACP countries, 55 are WTO Members and 39 are least developed countries (LDC).
60. The trade provisions are one instrument of ACP-EU cooperation.  The EU grants duty-free
treatment on industrial and processed agricultural products originating in 70 ACP countries on a non-
reciprocal basis (the Trade, Development and Cooperation Agreement applies to South Africa).  The
protocols on rum44 and bananas45 of the Fourth Lomé Convention are discontinued, but Protocols 3
and 4 on sugar, and beef and veal, respectively, are continued.  The Parties have requested a waiverfrom obligations under Article I:1 of GATT 1994 (which concerns MFN treatment), for the period
from 1 March 2000 to 31 December 2007, by which time new WTO-compatible trading arrangements
are to be concluded.
46  One option is a partnership agreement on a bilateral basis or between the EU
and a regional grouping (Regional Economic Partnership Agreement (REPA)), another is integration
into GSP (section (4)(iii)(a)).47  Furthermore, the EU undertakes to grant duty-free treatment by 2005
at the latest to "essentially all products from all LDCs building on the level of existing trade
provisions of the fourth ACP-EC Convention".48
Trade, Development and Cooperation Agreement (TDCA) with South Africa
61. The Community concluded a Trade, Development and Cooperation Agreement (TDCA) with
South Africa in March 1999, which entered into force on a provisional basis on 1 January 2000.49
Under the TDCA, 95% of EU imports  from South Africa will be fully liberalized at the end of ten
years, and 86% of South Africa's imports from the EU will be fully liberalized at the end of 12 years,covering more than 90% of combined trade.  Separate agreements are under negotiation for
concessions on fishery products, wine, and spirits.  The TDCA is likely to have important effects on
                                                     
44 Duty-free treatment for rum produced by ACP States applies from 1 January 2000, and duty-free
treatment will apply to high quality rum from 2003, under the agreement reached with the United States on
spirituous beverages (OJ L 155, 1997).
45 Preferences on bananas result from Article 1 of Annex V of the Partnership Agreement in the context
of the Community's new common market organization for bananas (Council Regulation 404/93 as amended), toreplace the regime that was the subject of WTO dispute settlement proceedings (section (4)(i)(b)).
46 WTO document G/C/W/187.  The waiver granted by the WTO (WT/L/186, which extended the
waiver from Article I (MFN) of GATT for the Fourth ACP-EEC Convention of Lomé (GATT document
L/7694, 9 December 1994), expired on 29 February 2000.
47 A joint analysis by EU and ACP experts of the GSP option for the 31 non-LDC ACP countries found
that the GSP is a highly different framework for trade relations, as the preferences are non-contractual.  Theanalysis also found that "globally equivalent" market  access under GSP would apply to only 9 of the 31 non-
LDC ACP countries, mainly because of the preferen tial access granted by the Lomé Convention's commodity
protocols, of which those on sugar and beef and veal were retained in the Partnership Agreement of Suva.(CE/TFN/GCEC3/29-EN, AC P/00/177/99 [Online].  Available at:  http://europa.int.eu/comm/dg08/
event/gsp_en.pdf [14 June 1999].)
48 WTO document G/C/W/187/Add.1.
49 South Africa was granted "qualified membership" in the Fourth Lomé Convention on 24 April 1997,
and did not benefit from its trade provisions or fr om access to the European Development Fund (European
Commission, DGVIII, 1999).The European Union WT/TPR/S/72
Page 35
the trade policies of South Africa's partners in the Southern African Customs Union (SACU) –
Botswana, Lesotho, Namibia and Swaziland – since the members apply the duties set by South Africa.
(e) Interregional agreements leading to free-trade agreements
62. The EU's initiative to establish closer political and economic ties with Latin America and the
Caribbean led to a 1998 Interim Agreement with the objective of reciprocal trade liberalization with
Mexico, and an Interregional Framewor k Partnership Agreement with MERCOSUR50;  which entered
into force in 1999.  The EU is the main tr ading partner of MERCOSUR, and the second most
important trading partner of Mexico.
63. Negotiations were concluded on a free-trade agreement between the EU and Mexico in
November 1999.51  The provisions on goods are to enter into force on 1 July 2000.  On industrial
goods, EU imports from Mexico are to enter duty- free in 2003, and Mexico's imports from the EU are
to be granted tariff preferences in parallel to those granted to Canada and the United States under the
North American Free-Trade Agreement (NAFTA) to ensure that trade diversion related to NAFTA is
limited for European exporters to the Mexican market.
64. Negotiations between the EU and Chile, and with MERCOSUR, began in March and
April 2000, although negotiations on tariff liberalization cannot begin before July 2001.  Furthermore,the negotiating mandate indicates that negotiations are not expected to be concluded until after the end
of the next round of multilateral negotiations under the WTO.  The aim is to expand trade between the
EU, MERCOSUR and Chile through the development of free-trade by 2005.
(iii) Preferential arrangements
(a) Generalized System of Preferences
65. During the period under review, the EU introd uced a revised GSP scheme for the period
1 July 1999 to 31 December 2001.
52  The scheme is available to 146 independent developing
countries (and a number of dependent territories);  with effect from 1 May 1998, Hong Kong, China;
the Republic of Korea; and Singapore were "g raduated" from the list of GSP beneficiaries.53
66. The product coverage of the GSP scheme includes processed agricultural products, fish,
mining products, and industrial products.  As a re sult of "preference modulation", a lower degree of
preference is granted to sensitive products:  on "very sensitive products" (many agricultural products,textiles and textile articles, iron and steel), the duty that applies is 85% of the MFN rate;  on "sensitive
products" (many agricultural products, chemicals,  plastics and rubber products, leather goods,
footwear, wood and wood products, paper, glass, copp er, appliances, and motor vehicles) the duty is
70% of the regular rate;  on "semi-sensitive products", the duty is 35% of the regular rate;  and no
duty applies to "non-sensitive products".  Graduati on from GSP benefits applies to country–product
category combinations, plus any country whose share of a certain product in the EU's imports exceeds
25%.  As a result, "implicitly, the system disadvantages larger countries [and] … discourages
countries concentrating exports to th e EU in a narrow range of products".
54
                                                     
50 COM(1995) 495 final.
51 Available at:  http://europa.eu.int/comm/trad e/bilateral/mexico/fta.htm [15 March 2000].
52 Council Regulation 2820/98.
53 Council Regulation 2623/97.
54 WTO (1995), Vol. 1, p. 35.WT/TPR/S/72 Trade Policy Review
Page 36
67. Least developed countries are eligible for the mo st favourable treatment.  They are granted
duty-free access on all product categories covered in the general regime (Annex I), irrespective of the
degree of product sensitivity, plus preferences for additional, mainly agricultural, products
(Annex VII), subject to preference modulation.  The tariff preferences (excluding the commodity
protocols) for least developed countries under the new GSP scheme are equivalent to those granted
under the Lomé Convention.55  Under provisions to assist countries that combat drug production and
trafficking, treatment better than the general regime is available to the Andean Group, the Central
American Common Market, and Panama.56
68. GSP beneficiaries may apply to obtain the Community's special incentive arrangements for
countries demonstrating adherence to certain intern ationally recognized core labour standards or to
certain standards set by the International Tropical Timber Organization (Box II.5).57  The country
must provide details of its domestic legislation and the measures taken to apply and monitor the
provisions effectively, which the Commission investigates to the extent possible, including in the
country itself.  According to the Commission, two applications have been received for the special
incentive arrangement on core labour standards, from Moldova and the Russian Federation, with the
former granted the special incentive in April 2000.
Box II.5: Special incentive arrang ements for the adoption of la bour rights and environmental
protection under the EC's Genera lized  System of Preferences
Special incentive arrangement for labour rights
The special incentive arrangement may be granted to countries demonstrating adherence to certain "core"
internationally recognized labour standards, developed by the International Labour Organization (ILO):No. 87 (1948), Freedom of Association and Protection of the Right to Organise Convention; No. 98(1949), Right to Organise and Collective Bargaining Convention; and No. 138 (1973), Minimum AgeConvention.  These conventions ensure the right to organize and bargain collectively, and the elimination
of child labour in all sectors (in developing countries, a minimum age of employment of 14 years and
12 years for "light work").
The special incentive consists of:  on covered agricultural products, an additional preferential margin of
10% of the regular duty for "very sensitive" products (on top of the initial 15% reduction in the generalregime), 20% for "sensitive" products (on top of the initial 30% reduction) and 35% for "non-sensitive"products (on top of the initial 65% reduction); on co vered industrial products, an additional preferential
margin of 15% of the regular duty for "very sensitive" products (on top of the initial 15% reduction in the
general regime), 25% for "sensitive" products (on top of the initial 30% reduction), and 35% for "non-sensitive" products (on top of the initial 65% reduction); and on graduated products, the additionalpreferential margin amounts to 15% of the regular duty  for agricultural products and to 25% of the regular
duty for industrial products.
Special incentive arrangement for environmental protection
The special incentive arrangement is available to co untries demonstrating adherence to standards set by
the International Tropical Timber Organization (ITTO), and consists of preferences for selected products
originating in the tropical forest (Annex VIII).
Source: Council Regulation 2820/98 .
                                                     
55 Council Regulation 602/98, with effect from 1 January 1999.
56 WTO documents WT/DS154/1-5.
57 Council Regulation 1154/98, with effect from 4 June 1998.The European Union WT/TPR/S/72
Page 37
(b) Autonomous tariff measures (ATMs)
69. Since 1992, the EU has granted tariff preferences, subject to quotas and ceilings, on products
imported from certain countries of the former Yugoslavia – Bosnia-Herzegovina, Croatia, the Federal
Republic of Yugoslavia and the former Yugoslav Republic of Macedonia (FYROM) – and has
extended the same regime to Albania since September 199958;  the countries concerned are not
Members of the WTO, but have requested accession.  The EU has requested a waiver from  itsobligations under Article I:1 of GATT 1994 (on MFN treatment) until 31 December 2006.
59
(iv) Partnership and cooperation agreements
70. The Community concluded a Partnership an d Cooperation Agreement (PCA) with the
Russian Federation in 1994, which entered into force in 1997, and has also concluded PCAs with
Azerbaijan, Kazakhstan, Kyrgyzstan (which acced ed to the WTO in 1999), Moldova, and Ukraine.
The PCA provides for the parties to grant each other MFN and national treatment, subject to
exceptions for regional trade agreements and preferences to developing countries.  A party may not
apply quantitative restrictions on imports from the other party, although provision is made for separate
agreements on textiles and clothing, and iron and steel products.  The Community concluded an
agreement on trade, commercial, and economic cooperation with Mongolia, which provides for theparties to grant each other MFN treatment.
(v) Other agreements on trade and economic relations
71. During the period under review, the Community has pursued a broader range of objectives in
its trade and economic relations.  One objective is customs cooperation, on which agreements were
concluded with Canada; Hong Kong, China; the Republic of Korea; Norway; Switzerland; and the
United States.  Customs cooperation is now regularly integrated in the EU's trade agreements (e.g.,
free-trade agreement with Israel, PCA  with the Russian Federation).  Provisions include assistancebetween customs authorities to ensure the proper application of customs legislation and the
prevention, investigation, and combating of any breach of customs legislation.  Another objective is
securing a framework to protect intellectual property rights arising from scientific research, including
by sharing rights resulting from jointly funded projects, through agreements for scientific and
technological cooperation concluded with Canada, South Africa, the United States, or throughprovisions to similar effect in trade agreements.  Other objectives have been access to government
procurement, the protection of geographical design ations on wine, or agreements on assistance for
competition policy matters (Chapter III(4)(iii)(b)).
72. Mutual recognition agreements (MRAs) for the results of conformity assessment concluded
with Australia, Canada, New Zealand, and the United States, entered into force during the periodunder review;  an MRA with   Switzerland has not yet entered into force and negotiations with Japan
are on-going.
60  Each MRA contains a framework agreement establishing the principles and
procedures for acceptance of attestations of conformity, while sectoral annexes specify the scope of
the MRA in terms of products, regulations or procedures.   A core of sectoral annexes is present in all
agreements – telecommunications terminal equipment, electrical safety, electromagnetic
                                                     
58 Council Regulation 70/97.
59 WTO document G/C/W/178.
60 An MRA is distinct from the Protocol to the Europe Agreement on Conformity Assessment and
Acceptance of Industrial Products (PECA), for which negotiations are on-going between the EC and the Czech
Republic, Estonia, Hungary, and Latvia, insofar as the Europe Agreement country is transposing the acquis
communautaire  in the field of technical regulations and standards as part of its pre-accession strategy.WT/TPR/S/72 Trade Policy Review
Page 38
compatibility, medicinal products and medical devices – and other annexes are included only in some
agreements, such as machinery and pressure equi pment (Australia, New Zealand), cars and parts
(Australia), and recreational craft (Canada, United States).
73. According to the Commission, an MRA for the results for conformity assessment facilitates
trade by giving each party the authority to test and certify products against the regulatory
requirements of the other party, in its own territory  and prior to export;  such agreements do not imply
or require the harmonization of regulations or standards.61  Attestations of conformity issued by
agreed conformity assessment bodies of the other party are accepted, thereby permitting the exported
product to be placed on the market without undergoing additional conformity assessment procedures.
Such an MRA therefore requires full confidence, on bot h sides, that the certification process of the
other party can wholly satisfy its requirements;  the Commission notes that "such confidence is mosteasily established at a bilateral level and between partners with broadly comparable concepts of
product testing and approval".
74. An agreement limited to mutual recognition of the principles of Good Laboratory Practice
(GLP), which refers to the OECD principles on th e matter, was concluded between the EU and Israel.
The agreement, which will enter into force in 2000, provides that safety data obtained in one party inaccordance with GLP will be accepted by the competent authorities of the other party.
62
                                                     
61 COM(96) 564 final.
62 GLP applies to the testing and assessment of ch emicals (cosmetics, industrial chemicals, medicinal
products, food additives, animal feed additives, an d pesticides) to determine their potential hazards.