Medlemmerne af Folketingets Europaudvalg og deres stedfortrædere Bilag Journalnummer Kontor 1 400.C.2-0 EUK 29. oktober 2004 Til underretning for Folketingets Europaudvalg vedlægges WTO’s ’Trade Policy Review’ af EU sammen med formandens konkluderende bemærknin- ger og Kommissionens pressemeddelelse om gennemgangen. Presseerklæringen foreligger ikke i elektronisk format

2 TRADE POLICY REVIEW The European Union Report by the Government

3 Contents I. Introduction II. Key developments in the EU (2000-2002) (1)   Political/Institutional developments (2)   Developments in the Internal Market   (3)   Developments in trade III. The EU Trade Policy Framework IV. The EU’s trade policy at global level (1)   The EU and the WTO 1.1 Strengthening and promoting the multilateral system 1.2 Preparing and launching a broad and balanced round 1.3 Doha results: A short assessment (2)   Bilateral trade relations 2.1 Preferential Trade Regimes 2.2 Free Trade Areas   2.3 Regional initiatives 2.4 Other bilateral relations V. Future policy making (1)   The DDA negotiations (2)   Trade and Development (3)   Bilateral initiatives VI. Conclusion

4 I. Introduction The last two years has witnessed continued international debate about the benefits, implica- tions and potentially negative impact of economic globalisation, and about how to manage globalisation in a way that supports sustainable development. For the EU, and for Euro- pean Governments, this debate has likewise been reflected in both its internal and external economic policies over the past two years, whether this be the deepening of its relations with  countries  in the  process  of  accession  to the  EU, the  introduction of  the  Euro,  the further consolidation of the EU’s internal market, or the promotion of sustainable deve- lopment at the multilateral level.   Recognising that trade policy, like other fields of economic policy, is a means to the end of providing for economic prosperity, and providing the economic underpinning for the cho- sen  level  of  social  provision  societies  consider  appropriate,  the  EU’s  approach  to  trade policy in the period under review has continued to reflect its fundamental commitment to an open and dynamic market economy, supporting appropriate levels of social provision and protection, and conducive to sustainable development. The open multilateral trading system principally embodied in the WTO Agreement remains the central plank of this wider trade policy agenda. The WTO’s system of rules, freely ne- gotiated market access commitments, and its commitment to future progressive liberalisa- tion and strengthened rules constitutes, in a sense, an external framework for agreement on and implementation of the right economic policies, comparable to the EU’s own internal market programme, its own experience in international cooperation and rule making, and its commitment to sustainable development.   This sixth review covers a period in which the EU has been at the forefront of efforts to launch a new round of multilateral trade negotiations. A substantial part of the EU’s trade policy  activities  in  the  period  under  review  has  therefore  naturally  focussed  on  working both within the Union and with trading partners to define the future multilateral agenda, and to build consensus in favour of a comprehensive trade round that would offer benefits to all WTO members. The EU considers international economic cooperation through the WTO to be  both  necessary  and  one  of  the  most  effective  ways  to  reconcile  the  varying demands of economic growth, the equitable integration of developing countries into the global economy, and improved environmental protection and social development, in order to better to harness the process of globalisation.   The successful launch of the new negotiations at Doha constitutes, therefore, a signifi- cant step towards restoring confidence in the multilateral system and strengthening interna- tional economic governance. The Doha Development agenda opens the way for negotia- tions leading to further improvements in market access for goods and services as well as strengthening and expansion of trade rules, with the overall objective of sustainable deve- lopment. The Declarations adopted at Doha above all reflect the interests of developing and least-developed countries in enhancing their integration into the global economy.   Within the EU itself, a number of key developments have taken place since the last re- view, the main step forward being the successful introduction of the euro coins and bank- notes  on  1  January  2002.  The  enlargement  process  has  also  made  remarkable  progress, underpinned  by  internal  reforms  within  the  EU  Institutions.  Important  steps  have  been taken towards further liberalisation, economic and structural reform that will contribute to the EU’s international competitiveness and be supportive to stronger integration into world markets from a solid domestic basis. Further progress has also been made in completing the Single Market with notable successes, in particular after the Lisbon European Council in March 2000 which gave an important fillip to economic and social renewal.  

5 II. Key developments in the EU (2000-2002) (1) Political/Institutional developments There has been considerable progress in pursuing the four strategic objectives set out by the Commission in January 2000 at the start of its five year mandate: enlargement, sustai- nable growth, subsidiarity and improved governance. Particular attention has been paid to both internal reforms within the EU Institutions, and the broader reforms being carried out in preparation for enlargement of the Union, now that negotiations with a number of applicant countries are at an advanced stage. This pro- cess of reform was taken forward by the Treaty of Nice in December 2000, still in the process of ratification, and which adapts current structures in order to prepare for enlar- gement. Beyond Nice however, a more far-reaching reflection on the future of an enlarged Union has also been launched by the creation in early 2002 of a Convention to identify options for future Treaty changes to be considered in the next Inter-Governmental Confe- rence. In parallel, a broad reflection on how to improve the functioning of the Union was launched through the Commission’s White Paper on European Governance in Sum- mer 2001. This has placed stress on improving the regulatory environment and on greater involvement of all stakeholders in the European policy-making process, objectives the EU has also sought internationally. The  European  Union  has  continued  to  pursue  the  strategy  for  economic  and  social renewal adopted  by  the  European  Council  in  Lisbon in  March  2000,  chalking  up  some notable  successes  to  improve  the  Internal  Market's  performance.  These  successes  have maintained momentum behind key structural reforms, while also maintaining a focus on research,  skills,  training  and  innovation  within  an  emerging  European  Knowledge  Area. This strategy has been completed by subsequent European Councils, notably by the additi- on of a Social Policy Agenda in December 2000 and the setting out of a comprehensive approach to sustainable development in June 2001.   The enlargement process has moved forward steadily and now entered a crucially impor- tant  stage.  The  Gothenburg  and  Laeken  European  Councils  have  drawn  up  important guidelines for the final steps of the process. The aim is to conclude negotiations with those candidate countries that are ready by the end of 2002, so that they can take part in Euro- pean Parliament elections in 2004 as members. For those countries with which negotiations cannot be concluded by then, the European Commission will propose an enhanced pre- accession strategy and a precise road map with the objective to further speed up the nego- tiations. The pre-accession strategy for Turkey has moved into a new stage, with the detai- led scrutiny of Turkey’s legislation and preparation for alignment with the acquis. (2) Developments in the Internal Market Further progress on the internal market has been accomplished during the last two years, with the introduction of the euro as the major achievement. The successful introduction of the euro banknotes and coins in January 2002 marked the completion of the monetary union process in the twelve EU Member States which have adopted the euro (Greece having joining the eurozone on 1 January 2000). Three Member States, namely Denmark, Sweden and the United Kingdom, are not part of the euro area, as they have not yet decided to join it or have not fulfilled all the conditions to do so. The introduction of the euro banknotes and coins was the largest-ever currency changeo- ver  operation  in  history,  and  was  carried  out  in  each  participating  country  according  to

6 national plans. Euro banknotes and coins were distributed as of 1 January 2002, though some euro coins were put on sale from mid-December. All countries experienced a period of dual circulation when both legacy currencies and the euro held legal tender status. The period of dual circulation ended on 28 February, though some countries (the Netherlands, France  and  Ireland)  had  set  shorter  periods  of  dual  circulation.  Germany  was  the  only country  where  the  legacy  currency  lost  legal  tender  status  as  of  31  December  2001;  no- netheless, retailers accepted Deutsche marks until 28 February 2002. The  euro  has  produced  tangible  benefits  for  the  euro  area  economy:  a  macroeconomic policy framework that ensures stability; low inflation and low interest rates; progress in the development and integration of national financial markets and more resilience to external shocks. The physical introduction of the euro has brought additional benefits, notably in- creased price transparency which will strengthen competition in the EU single market. The Lisbon European Council in March 2000 recognised the importance of a fully inte- grated Internal Market as a key element of the economic and structural reform needed to boost  the  EU's  international  competitiveness.  Important  steps  have  been  taken  in  these two years to improve the Internal Market's performance - for example, further liberalisa- tion of postal services, a Directive establishing the legal framework for e-commerce, a new telecommunications package which will encourage greater competition and protect consu- mers, the European Company Statute which will allow companies to organise themselves efficiently across borders, and some important items of legislation foreseen in the Commis- sion's Financial Services Action Plan (eg. UCITs Directive or the International Accounting Standards Regulation). Also, the Directive on the harmonisation of certain aspects of copy- right and related rights in the information society has been adopted. This will allow ratifica- tion of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty by the EC and its Member States. The Barcelona European Council of March 2002 cleared the way for further progress, par- ticularly  in  network  industries  (energy,  transport,  telecommunications)  and  financial  ser- vices, where eight items of draft legislation are currently awaiting adoption in the Council or  the  European  Parliament.  Agreement  is  also  expected  soon  on  the  Regulation  for  a Community Patent - which will offer firms a cost-effective means of protecting their inven- tions and exploiting their intellectual property rights - and the public procurement package - which will update the Community's legal framework to take account of new technologies, such as e-procurement. In addition, the Commission is pressing ahead with its strategy for removing barriers to the Internal Market in services and the modernisation of the Commu- nity's competition rules. To ensure that progress is maintained, the Commission's Internal Market Strategy - a five-year process which is reviewed annually - provides a framework for setting priorities, monitoring the speed with which they are achieved and making ad- justments as necessary. A more effective Internal Market will contribute to faster European growth which will also of course benefit those countries trading with the EU. Norway, Iceland and Liechtenstein are closely linked to the Internal Market through the Agreement on the European Economic Area (EEA). The European Commission and the EFTA Surveillance Authority ensure uniform application of the common rules, while the EU Court of Justice and the EFTA Court exert judicial control. The level of transposi- tion  of  Internal  Market  rules  is  already  high.  In  the  period  under  review,  Norway  and Iceland have considerably further reduced their transposition deficits and Liechtenstein is making steady progress. (3) Developments in trade In 2001, the EU-15 trade deficit shrank by about 50 percent, from EUR 91 bio in 2000 to EUR 46 bio in 2001. EU-15 trade flows with its major partners were mixed, with falls recorded in imports from Japan (-13%), from the USA (-3%) and from Norway (-1%), and

7 in  exports  to  Turkey  (-33%).  On  average,  EU  imports  increased  by  12%  annually  from 1996-2001, whereas EU exports only rose 9% annually over the same period. The highest EU trade deficit in 2001 was recorded with China (EUR -45.7 bio). The highest surplus was registered with the USA. The latter increased to EUR +43.6 bio in 2001 from EUR +33.5 bio in 2000. EU15 trade with Japan showed a decrease in the EU deficit (EUR -30.8 bio in 2001 compared to EUR -42.1 bio in 2000). The EU’s largest suppliers are the U.S.A, China,  Japan,  Switzerland,  and  Russia.  The  EU’s  largest  export  markets  are  the  U.S.A., Switzerland, Japan, Poland and China. The largest relative increases in imports in 2001 were from the Czech Republic (+16%), Turkey (+15%) and Poland (+14%). About three quarters of EU imports are composed of primary products, machinery,  and  other  manufactured products,  in  roughly  equal shares. The  most  notable  increases  were  in  exports  to  Russia  (+39%),  China  (+17%)  and  the Czech Republic (+14%). About 87% of EU exports are manufactured products, primarily machinery (30%), transportation materials (17%), and chemical products (14%). The ener- gy deficit stabilised (EUR -117.9 bio in 2001 compared to EUR -118.1 bio in 2000), while the surplus for machinery and vehicles increased (EUR +79.0 bio in 2001 compared with EUR +45.4 bio in 2000). In 2001, the EU liberalised its trade with Least Developed Countries (LDCs) under the Everything But Arms (EBA) initiative. Although only implemented towards the end of the year, imports from these countries nevertheless considerably increased in 2001 bringing the EU’s trade deficit with LDCs to EUR -1.2 bio. Further increases can be expected in the near future as LDCs exploit their preferential access. The  EU  is the  world’s  largest  importer  of  services  with  24%  of  total  world  services imports. The EU maintains only a small surplus in its services balance (EUR +5.2 bio in 2000).  EU  services’  imports  come  overwhelmingly  from  the  U.S.A.  (over  40%  of  total). Much  of  the  rest  is  imported  from  Asia  (17.2%),  the Mediterranean  (8.5%)  and  the  EU accession candidate countries (5.7%). About one half of EU services trade consist of travel and  transportation,  in  roughly  equal  shares.  Other  business  services  account  for  about another quarter. The fastest import growth in recent years has been in computer and in- formation services, which grew by 24% annually from 1994 to 2000. The EU accounts for almost half of all world outward FDI flows. In 2000, EU FDI outflows exceeded inflows by EUR 186 bio. On average, more than half of EU FDI out- flows go to the U.S.A., 12% to the LATAM 20 countries, 5% to the candidate countries, and 7% to Asia. From 1997-2000, EU outward FDI flows to the U.S.A. increased by 53%, and flows to Japan grew by close to 84% per year. EU FDI flows to Korea also advanced rapidly  (by  on  average  138%).  Flows  to  China,  to  the  candidate  countries,  and  to  Latin America all increased by roughly 30% annually. III.    The EU Trade Policy Framework The formulation and implementation of trade policy in the EU takes place in an effi- cient, transparent and democratically accountable manner. Article 133 of the EC Treaty is the legal basis for EU trade policy, according to which any measure to be taken within the Common Commercial policy is proposed by the European Commission and decided by the Council. The Commission ensures the uniform representation of EU trade policy views at both  bilateral  and  multilateral  level,  assisted  by  a  consultative  Committee  (Article  133 Committee) composed of representatives of the Member States. The day-to-day running of EU trade policy is the task of the Commission’s Directorate General for Trade. The Euro- pean  Parliament  is  kept  informed  and  is  consulted  on  a  regular  basis.  In  addition,  the Commission implements a policy of transparency and broad, open dialogue with stakehol-

8 ders,  inter  alia  by  organising  regular  meetings  sessions  with  representatives  of  interest groups and civil society, including representatives from industry, the social partners and the NGO Community. The Treaty of Nice introduced a substantial reform of Article 133 of the EC Treaty. It aims at adjusting Article 133 to the reality of modern trade policy, which covers a growing number of related policy areas. The new text therefore ensures the application of uniform rules  and  procedures  regarding  the  conclusion  by  the  EU  of  agreements  in  the  field  of trade  in  services  and the  trade  aspects  of  intellectual  property. The  EU  and  its Member States will continue to act together with regard to a limited number of issues for which they share competence, such as social, cultural, educational and health services. In this way, the revised Article 133 will improve the formulation and implementation of trade policy in the EU by means of a better allocation of powers and enhanced uniformity and flexibility in the decision-making mechanisms. The  EU’s  trade  policy  should  be  seen  in  the  context  of  the  overarching  objective  of sustainable development set out in Article 2 of the Treaty on European Union, as well as Article  6  which  requires  environmental  concerns  to  be  integrated  into  all  EU  policies  - including trade policy. It flows from this that the EU seeks to ensure that trade is sustai- nable and that its trade policy as a whole aims to be supportive of sustainable development. The EU therefore plays a leading role in international fora addressing trade and sustainable development issues, and remains particularly supportive of increased action at multilateral level, including through the WTO, in favour of sustainable development.   This commitment to promoting sustainable trade has been reflected in the EU's approach to  the  new  negotiating  round,  in  particular  its  firm  support  for  the  overarching  goal  of sustainable development reaffirmed by WTO members in Doha. The EU is also commit- ted  to  carrying  out  Sustainability  Impact  Assessments  (SIAs)  of  both  its  multilateral and bilateral trade negotiations. A general SIA of the EU's negotiating mandate was carried out before the launch of the new round, with further sectoral assessments now being car- ried out. SIA’s are an important tool for policy makers since they can illustrate how to ma- ximise benefits of trade liberalisation and show where flanking measures might be needed to optimise outcomes or offset negative side effects. IV.     The EU’s trade policy at global level (1) The EU and the WTO 1.1 Strengthening and promoting the multilateral system An open and strong multilateral trading system is the best guarantee against the threat of unilateralism and constitutes one of the key tools to manage the process of globalisation. The EU will continue to work to reinforce the WTO, enlarging and improving its system and promoting a more active participation of all its Members, including in the negotiations now underway. The EU has continued and will do so in the future to work assiduously for the earliest possible accession on commercially viable terms of all candidates having ap- plied to join the WTO, in particular LDCs. In this respect, the EU very much welcomes the Chinese and Taiwanese accession to the WTO during the period covered by this re- view, after 15 years of long and arduous negotiation. Their accessions constitute a big step towards making the WTO a truly global organisation. The EU attaches the greatest importance to the correct and timely implementation of the agreements  to  which  all  WTO  members  have  subscribed  as  an  essential  element  for  a

9 well-functioning multilateral trading system. In this context, the EU welcomes the fact that during  the  period  under  review,  both  before  and  at  Doha,  many  concerns  related  to implementation  could  be  resolved,  and  that  agreement  was  reached  on  a  framework  to address the outstanding issues. The EU continues to actively participate in implementation- related discussions, including those related to special and differential treatment, with a view to settling all outstanding issues to the satisfaction of all WTO members, and remains open to considering proposals to readjust agreements as part of the single undertaking.   During the period of this review, the EU has participated actively in the various phases of the WTO negotiations on agriculture and services since the launch of the built-in-agenda negotiations in January 2000. In that respect, the EU and other Members have submitted several  papers  on  agriculture,  including  a  comprehensive  negotiating  proposal.  Other technical papers submitted cover such issues as export competition and non-trade concerns (labelling  and  food  safety).  The  EU  position,  based  on  Article  20  of  the  Agreement  on Agriculture (AoA), takes into account the need to aim at a balance between trade concerns (market access, export competition, domestic support) and non-trade concerns (the protec- tion of the environment, the sustained vitality of rural communities, food safety and other consumer concerns including animal welfare), which reflect important societal goals. Mo- reover, the EU considers that further liberalisation and expansion of trade for agricultural products are an important contribution to sustained and continued economic growth, in both developed and developing countries.   On the services side, during the period covered by this review the EU played an active part in the work of the Council for Trade in Service, the Special Sessions and their respec- tive subsidiary bodies. The EU has tabled proposals not only on its overall approach to the services negotiations but also for most of the sectors covered by the GATS. As regards intellectual property rights, the EU has continued to participate in the TRIPs built-in agenda and acted as a facilitator in the discussions on TRIPS and health when pre- paring for the new round. Following the successful decision on TRIPS and Health taken at Doha,  the  EU  is  now  developing  ideas  to  improve  access  to  medicines  for  countries without domestic production. The EU continues to be an active user of the WTO dispute settlement mechanism. Since the date of the previous report, the EU has requested consultations with other WTO Members on 7 occasions. Those proce- dures are still ongoing.   As a complainant, and also as a third party, the EU has been especially active in the field of trade defence (Anti-dumping, Countervailing du- ties and Safeguards). The dispute settlement activity in this area has significantly  contributed  to  the  clarification  of  key  provisions  of  the relevant  agreements.  In  this  regard,  the  EU  would  highlight  the systemic importance of the case against the 1916 US Anti-dumping Act (DS136),  which  concerned  the  use  of  instruments  other  than  duties against  dumping  of  exports,  and  the  cases  on  safeguard  measures, such as “US-Wheat Gluten” (DS166). The interest of the EU in preven- ting the misuse of trade defence instruments is broadly shared among WTO  Members.  The  complaint  against  the  US  Continued  Dumping and  Subsidy  Offset  Act  (DS217),  which  has  been  brought  by  11  co- complainants, best exemplifies this general concern within the WTO Membership. Other important areas where the EU has brought dispu- te settlement cases are intellectual property and subsidies. In the latter field, the landmark “FSC” case (DS108) on the use of tax breaks as ex-

10 port subsidies provided further evidence of the need to address the se- quencing of Articles 21.5 and 22.6 DSU.   Regarding the cases in which the EU was the defendant, the EU would like  to  underscore  the  results  of  the  “asbestos”  case  (DS135),  which reaffirmed  that  health  protection  can  be  set  as  an  overriding  goal  of public policy. The EU would also highlight its efforts to achieve mu- tually satisfactory settlements to trade disputes, which have notably led to  a  solution  that  puts  an  end  to  the  longstanding  “banana”  dispute (DS27). The EU remains fully committed to the successful resolution of the other cases where the EU is the defendant. A key EU priority continues to be the full integration of developing countries, in parti- cular the least developed countries (LDCs), in the multilateral trading system and the global economy, so as to help them benefit from the opportunities for growth and development. The EU was therefore one of the main proponents of the development-centred round of new negotiations launched in Doha, and in addition to this has taken action autonomously to help developing countries in their efforts to integrate. In particular, the EU adopted in March 2001 the Everything But Arms (EBA) initiative, which grants duty-free and quota- free access for all LDC exports to the EU. The EBA has already taken effect, with only three products - rice, sugar and bananas – subject to a transition to duty -free and quota- free access. The EU welcomes the subsequent commitment by other developed countries to enact similar initiatives in favour of LDCs.   Experience  has  shown  that  many  countries  have  difficulties  in  making  use  of  the  trade opportunities  offered,  and  improved  market  access  therefore  must  be  complemented  by capacity  building  measures.  The  EU  supports  trade  related  assistance  and  capacity building  in  its  bilateral  programmes  and  as  part  of  its  participation  in  multilateral  co- operation. As regards bilateral programmes, the EU redefined its development policy prio- rities  in  2000,  identifying  trade  as  a  development  priority,  and  has  since  then  begun  to mainstream  trade  actions  in  all  bilateral  and  regional  programmes,  including  support  for WTO negotiations, rule-making and supply side. At the multilateral level, the EU was the primary contributor to the WTO Doha Development Agenda Global Trust Fund, with the Community and Member States together contributing more than 60% of total pledges made in March 2002. The EU believes that the needs for trade related assistance go beyond the competence of the WTO Secretariat as such and requires increased efforts and closer co-operation among international organisations, in particular the Bretton Woods instituti- ons, UNCTAD, UNDP and ITC, including in the Integrated Framework for Trade-related Technical Assistance for LDCs and other similar mechanisms. The access of EU goods and services to markets around the world for the benefit of con- sumers and business world-wide remains a primary objective for the EU. The EU’s market access strategy focuses on the elimination of important market access barriers, by using to the full the various multilateral and bilateral instruments and opportunities at its dispo- sal:  the  WTO  dispute  settlement  procedure,  consultation  and  bilateral  agreements  with WTO members and others, and the new negotiating round. A new version of the market access database, the operational tool of the strategy, was released on the internet during the period of this review.   The EU retains the option to use, where necessary and appropriate, relevant trade defence instruments,  in  the  form  of  anti-dumping  and  anti-subsidy  measures,  to  counter  unfair injurious trading practices from third countries. Given the importance of its trade flows, the EU is an overall moderate user of such instruments. In its actions, the EU takes parti- cular care of the concerns of developing countries. It is noteworthy that although EU le-

11 gislation provides for the possibility to apply safeguard measures, the EU has made very limited use of this instrument since the entry into force of the WTO agreements. Indeed, the EU has only imposed one such measure since 1992. The exceptional measure on im- ports of steel was taken in 2002 in full conformance with the safeguards agreement. It fol- lowed the own US safeguard measures which effectively closed the US steel market. On the contrary, the EU’s safeguard measures took the form of generous TRQs, which preserved traditional levels of imports on its market. The EU attaches the greatest importance to all WTO members adhering to effective WTO disciplines in the area of trade defence. 1.2 Preparing and launching a broad and balanced round Drawing from the lessons of the Seattle Conference, which failed to launch a new round of multilateral trade negotiations, the EU like others adapted its approach to the new round, in particular by recognising that the WTO needed to work in a more inclusive and transpa- rent way vis-à-vis all Members, and improve communication with the outside world. On the substance of the lessons drawn from Seattle, the EU took into account other Members’ opinions  –  especially  developing  countries  -  and  continued  bridge  building  efforts  with trading partners in order to overcome differences. This modified approach was set out in the EC strategy paper of December 2000 which was generally well-received as a sign of flexibility and creativity. The EU thereafter continued efforts to launch an ambitious round, recognising that only a broad agenda could both reconcile different Members’ views and take account of all Member’ essential interests. Supported by the EU’s extensive consensus building efforts with other WTO Members, in particular developing countries and LDCs, the  modified  strategy  was  certainly  one  element  in  securing  support  for  the  successful launch of a new round of trade negotiations at the 4^th Ministerial Conference at Doha in November 2001. The DDA, encompassing both market access and rule making, and driven by a strong de- velopment objective, offers a major opportunity to promote global economic growth and sustainable  development,  and  to  further  strengthen  the  rules-based  multilateral  trading system.   The fundamental reasons for a broad round that pertained before Seattle have remained valid in the preparatory period before Doha and beyond. First, as regards further trade liberalisation, both developed and developing countries seek improved market access for their  products  and  services,  in  order  to  increase  international  economic  growth,  to  fully participate in the global economy and to restore business confidence at a critical juncture of the world economy. Agriculture, services and non-agricultural tariffs are all therefore key areas for improving market access.   On agriculture, the EU was already committed to negotiations under the built-in agenda and recognised that in a new round many participants expected to go beyond Article 20 of the  Agreement  on  Agriculture  in  terms  of  the  level  of  ambition.  The  EU  continuously showed its readiness to play its part in these negotiations by setting the pace and gradient of  further  reform,  including  a  deadline  for  the  conclusion  of  the  negotiations.  The  EU aimed at Doha to ensure that the outcome would balance its interests in its capacity as a major exporter and importer of agricultural products, while taking account of the non-trade dimension of agricultural policy. The Doha Ministerial brought a satisfactory outcome on agriculture, in confirming the commitment to negotiate on market access, domestic support and  all  forms  of  export  subsidies,  without  prejudice  to  the  final  outcome,  and  clearly acknowledging the multifunctional nature of this sector and the need to take fully into ac- count the interest of developing countries.   As far as services are concerned, the EU’s objective was to make progress in the ongoing GATS 2000 negotiations on liberalisation of international trade in services, in particular to

12 get improved market access world-wide for its services exports. The EU therefore welco- mes the agreement reached in Doha on the dates for the submission of requests and initial offers which are important elements to ensure progress in the negotiations, and hopes to see through the negotiations an increase in the number and quality of market access and national  treatment  commitments  across services  sectors  and  modes of supply,  as  well  as further development of regulatory disciplines. Developing countries in particular are likely to  benefit  significantly  from  further  liberalisation  of  services  sectors  which  continue  to grow in importance. Liberalisation of the service sector however needs to be accompanied by an appropriate institutional and regulatory framework to ensure competition, to allow governments to pursue non-economic objectives, and to ensure continued access to essen- tial services for the poor. Implementing appropriate institutional and regulatory safeguards is  particularly  a  challenge  for  many  developing  countries,  which  is  why  the  EC  and  its Member States are putting such emphasis on trade related technical assistance and capacity building (TRTA/CB). In respect of non agricultural market access, the EU in the period under review conti- nued  to  favour  an  ambitious  mandate  that  includes  the  elimination  of  barriers  with  a comprehensive product coverage without any a priori exclusions. The EU was therefore pleased  that  at  Doha  agreement  was  reached  on  a  mandate  that  is  more  ambitious  than those of previous rounds, and more specific in that Members have agreed to reduce or as appropriate eliminate tariff peaks, high tariffs and tariff escalation. As with other elements of the Doha Agenda, negotiations on market access for non-agricultural goods are likely to have more fruitful results if placed within the wider framework of the DDA negotiations aimed at achieving a more transparent and predictable multilateral system of rules. Regarding  WTO Rules,  the  EU’s  view  during  the  period  under  review  continued  to  be that the scope of WTO rule making needed to be broadened if the multilateral system were to respond to the effects of globalisation, and if traders and investors world-wide were to enjoy a predictable, transparent and non-discriminatory framework in which to make eco- nomic decisions and to compete. Decisions to negotiate multilateral agreements on invest- ment, competition, trade facilitation and public procurement as well as a clarification of the interaction of important trade and environmental issues therefore continued to constitute a key element of the EU agenda for the round. From an EU point of view it has continued to be equally important to seek improvements to existing rules in such areas such as trade defence  or  technical  barriers  to  trade,  and  regional  trade  agreements,  in  order  again  to improve transparency and predictability for traders, investors, consumers and governments.   As part of its revised strategy for the new trade Round, the EU in the period under review consciously decided to adjust its negotiating objectives in several key rulemaking areas, to take  account  of  the  opinions  of other  WTO Members.  On  investment,  the  EU  sought simply  to  put  manufacturing  investment  on  the  same  footing  that  services  FDI  already enjoyed in the GATS – an approach with several years of history and with which WTO Members were by then familiar. The EU strongly welcomes therefore the objective set at Doha to establish a multilateral framework aimed at improving the conditions for Foreign Direct Investment world-wide. The result is of high importance for the EU in its capacity as one of the main sources for FDI around the world, but indeed constitutes a golden op- portunity for all WTO members to develop a balanced framework of rules that will ensure a level playing field with more stable and predictable investment conditions world-wide and be conducive to sustainable development.   On competition, the EU in its revised strategy suggested some basic rules that would help all Members to strengthen their ability to deal with anti-competitive practices. The decision at Doha to work towards a multilateral framework on competition policies, following the current  preparatory  phase,  will  contribute  towards  the  more  effective  application  of  do- mestic competition regimes and be of benefit for consumers and EU business operating

13 abroad around the world.. The elements for such a framework agreed at Doha correspond to those proposed by the EU, and reflect a realistic and progressive approach towards the development of competition disciplines at multilateral level, including the need to respond to the particular interests and concerns of developing countries.   It was equally important to the EU to seek a WTO agreement on trade facilitation aiming at  streamlining  customs  procedures,  cutting  costs  and  red  tape,  which  continues  to  be  a major constraint on developing countries’ export performance. Such an agreement would imply  significant  savings  by  helping  governments  to  improve  efficiency  of  controls  and, ultimately,  higher  revenue  intakes.  The  Doha  mandate  on  trade  facilitation  reflects  the objective shared by many Members of simplifying customs and related trade procedures, including transit measures to boost trade between developing countries in particular. The mandate also reflects the development objectives of trade facilitation, including the notion that assistance to build capacity should be an integral part of the work and be approached in a systematic manner. Regarding  government  procurement,  the  EU  had  in  the  period  of  this  review  argued  in favour  of  negotiating  a  set  of  rules  on  transparency,  as  a  means  to  reduce  the  trade- distorting effect that different procurement practices may have. The EU welcomes the fact that the WTO at Doha recognised the important contribution that procurement makes to the  economy  and  its  effect  on  trade,  and  launched  negotiations.  Multilateral  rules  on transparency  in  government  procurement  although  not  requiring  the  opening  up  of procurement  to  WTO  Members,  will  increase  knowledge  of  procurement  methods  and promote  contract  opportunities  while  maintaining  existing  preferences  to  domestic  sup- pliers.   On environment, an issue of importance for trade predictability but also a domestic sensi- tive issue for the EU, it was made clear that the EU’s agenda was a finite one –the objective was not to change WTO disciplines but to clarify or confirm the existing rules especially as interpreted by recent panels. The EU sought for a mandate on environment that was speci- fic, that the outcome should be clarification, and that it should be non-discriminatory and non-protectionist. The agreement in Doha to begin a negotiation to better frame the inte- raction between the WTO and environmental issues is thus a significant step for the tra- ding  system,  and  reflects  the  EU’s  and  other  members’  calls  for  increased  action  in  the WTO in favour of sustainable development. Regarding trade defence rules, the EU in the period under review was receptive to the proposal for a balanced negotiation on WTO rules to take place that will meet the demands of developing countries and allow them to search for improvements to the existing WTO Agreements without calling into question their basic principles. These objectives have been met in the Doha mandate. As regards regional trade agreements, the EU objective to start  negotiations  for  clear  and  quite  strict  rules  defining  the  conditions  to  be  met,  for FTAs and regional agreements to be WTO-compatible, was also satisfactorily agreed. The EU approached Doha with several objectives regarding the TRIPS agreement, all of which have been met. The Doha declaration contains a clear provision that negotiations on multilateral register will have to be completed by the 5th WTO Ministerial Conference and refers  also  to  the  TRIPs  mandate  for  negotiations  on  extension  of  the  coverage  of geographical  indications  for  the  benefit  of  business  and  consumers  around  the  world. It also  stipulates  that  the  issue  of  TRIPS/CBD  relationship  and  protection  of  traditional knowledge be examined and that appropriate action should be taken, reflecting the EU’s commitment to take account of developing countries interests in this area.   In addition to helping to launch negotiations on TRIPS within the Doha agenda, the EU also played a crucial bridge-builder role in the adoption of a Declaration on TRIPs and

14 public health, that reflects the EU’s conviction according to which the TRIPs Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health. This Declaration, which is in line with the position adopted by  the  EU,  is  a  major  achievement,  which  succeeds  both  in  safeguarding  the  TRIPs Agreement while recognising the importance of Members being able to pursue their legiti- mate public health goals.   The  EU  has  played  an  active  role  in  the  DSU  review.  In  accordance with  the  Doha  Declaration,  the  DSU  negotiations  aim  to  agree  on improvements and clarifications not later than May 2003. The EU has recently  submitted  a  comprehensive  contribution  to  the  negotiation process that it hopes will help WTO Members to fulfil the Doha man- date. In all its considerations regarding the future shape of the negotiating agenda the EU was at pains to ensure that the round included the interests of developing countries. This con- cerns in particular negotiations to improve market access in key sectors like agriculture and textiles, strengthening and tightening of trade defence rules, a review of the development aspects of the subsidies agreements, extension of TRIPS to cover products of importance to  developing  countries,  an  across  the  board  review  of  special  and differential  treatment provisions, and substantial support to build capacity.   The EU has also remained committed in the past two years to develop a meaningful dialo- gue, involving in particular the ILO and the WTO, on questions relating to trade, labour, and social development. The Commission’s communication 19 July 2001 on “Promoting Core Labour Standards and Improving Social Governance in the Context of Globalisation” addressed  the  issue  in  a  comprehensive  manner  by  suggesting  a  multi-disciplinary  work programme. The EU is committed to help promote the effective application of core labour standards globally, while eschewing the use of trade sanctions to enforce them. Internatio- nally, it recognises the key role of ILO and the need to strengthen ILO instruments for the effective application of core labour standards. In addition, the joint forum between ILO and WTO – which since Seattle has emerged as the preferred way forward - remain a key element of the strategy. In this context, recent ILO developments – notably the creation of the World Commission on the Social Dimension of Globalisation – are very positive. The EU  aimed  at  Doha  for  a  statement  reflecting  Members’s  attachment  to  improving  the WTO/ILO  dialogue  on  social  development  questions.  Although  the  Doha  outcome  on trade and social development is from an EU point of view too modest, it does still provides a basis to make progress on the issue, and the EU will work to ensure that WTO does in- deed contribute constructively to the ILO process.   Finally, improvements were registered during the period under review regarding transpa- rency and the participation of Civil Society. Domestically, the EU intensified its efforts at policy dialogue and consultation with representatives of civil society, recognising that it is primarily at the domestic level – within the jurisdiction of each Member – that such consul- tation  and  arbitration  between  different  social  partners  and  interests  must  take  place. Within the WTO, the EU consistently encouraged more frequent and structured dialogue with parliaments and civil society representatives, and was pleased that it was possible, both before and at Doha for Members to discuss issues in a constructive way with a civil society which is now playing a fuller role in WTO work than ever before and with no detrimental effect on the essentially – and rightly - intergovernmental nature of the WTO. Fewer in numbers and less prominent in Doha than in Seattle, civil society's influence was nonethe- less more clear: the Doha outcome on TRIPs and health for example reflects a commen- dably prompt and operational WTO response, inter alia to a civil society campaign laun- ched  less  than  two  years  earlier.  The  EU  will  continue  to  seek  improvements  to  the

15 transparency and effectiveness of the organisation, including possible institutional impro- vements. In this respect, the Doha declaration, despite not being very specific, clearly pro- vides a mandate for greater transparency, above all vis-à-vis the members of the organisati- on. In addition, on issues such as consultation and open meetings, the Secretariat will, with its greater autonomy, be able to launch more intensive dialogue with parliaments and civil society. Further thought needs however to be given to WTO reform in order to improve in particular the efficiency of decision-making. Finally, part of the efforts to improve the insti- tutional  working  of  the  WTO relates  to  the ongoing review  of  the DSU,  where the  EU favours the introduction in the DSU of the possibility to open proceedings to the public, as well as a better definition of the framework and conditions for the submission of amicus curiae briefs. In sum, the far-reaching results of the Doha Conference reflect very well the EU’s over- all objectives for the next negotiating round: a fourfold agenda to further liberalise market access, update and improve WTO rules, promote a development agenda and address issues of public concern. The declarations are both faithful to the EU's negotiating mandate and reflect our broad political and economic objectives, the interest of business and civil society as well as the global economic interest, including the needs of developing countries. The emphasis on developing country needs and on sustainable development is particularly wel- come.   As the major systemic gain, Doha potentially takes the WTO into a new era where its commitment  to sustainable development  –  always  central  to  its  mandate  –  is  now made more explicit and more operational. The result of this new round should over time signifi- cantly  improve  the  contribution  of  the  WTO  to  sustainable  development  and  improve international  economic  governance,  policy  aims  that  find  their  parallel  in  the  EU’s  own continued  construction.  Both  multilaterally  and  within  the  EU,  a  balance  between  rule making and progressive liberalisation continue to represent the right policy mix to encou- rage  sustainable  development  and  the  better  management  of  economic  change.  The  EU sees its immediate task now to carry out negotiations in a way that reflects the objectives of the Doha Development Agenda and the EU's own goals.   (2) Bilateral and regional trade relations In addition to its support for the multilateral trading system the EU is engaged in develo- ping trade relations with other trade partners in the world through a number of preferential trade regimes, free-trade areas and regional initiatives, and other bilateral agreements. Many of these relationships reflect the global economic and trade reach of the EU – which re- mains  the  major  trading  partner  for  many  countries  –  or  are  the  expression  of  broader geopolitical objectives. As a matter of trade policy however, the EU’s active engagement in a range of regional trade initiatives reflects above all the view that in the right circumstan- ces such relations can – and indeed must - contribute to and strengthen the multilateral system.   2.1 Preferential Trade Regimes The new ACP-EU Partnership Agreement signed on 23 June 2000 in Co- tonou, and whose trade provisions took effect from 1 August 2000, pro- vides  for  the  negotiation  of  new  WTO-compatible  arrangements, which progressively remove barriers to trade and enhance co-operation in  all  trade-related  areas,  to  be  concluded  and  put  into  effect  by  the end of 2007. In the meantime, and in order to facilitate the transition, the non-reciprocal trade preferences applied under the 4th Lomé Con-

16 vention have been maintained and are sanctioned by a waiver obtained at Doha. The Cotonou preferences include duty-free access for all in- dustrial and a large part of agricultural and processed agricultural pro- ducts as well as preferential tariffs for almost all the remaining agricul- tural products. The beef and veal and sugar protocols are also main- tained during the preparatory period but will be reviewed in the con- text of the new trading arrangements.   The present regulation governing the EU scheme for Generalised trade preferences, GSP, entered into force in 1 January 2002 and will cover the period until the end of 2004. It is based on the guidelines the EU adopted for the period 1995 to 2004. The EU GSP now covers virtually all sectors and fully incorporates the new EBA initiative which was adopted in February 2001 and which grants duty free access to all products from LDCs. The tariff modulation   has   been   simplified   with   the   establishment   of   two   categories   of   pro- ducts/sensitivity. Procedures concerning graduation, withdrawal, safeguard and the special incentive arrangements have been harmonised and clarified. The preferential margins that were eroded as a result of progressive trade liberalisation have been restored by reducing ad valorem  duties on  sensitive  products  by  a  flat  rate  of 3,5  percentage  points  and  specific duties  by  30%.  The  special  incentive  arrangements  have  been  made  more  attractive  by further reducing ad valorem and specific duties by an additional 5 percentage points and 30% respectively. Finally, the GSP’s role as a tool to foster sustainable development has been reinforced, predictability has been enhanced by requiring that graduation and exclu- sion only occur where the conditions are fulfilled during three consecutive years. In order to strengthen the political stabilisation and economic development of the region, the EU introduced on 18 September 2000 (amended on 20 November 2000 and 18 De- cember  2001)  Autonomous  Trade Measures  (ATMs)  in  favour  of  the  countries of We- stern  Balkans  to  be  applied  until  31  December  2005.  Based  on  a  former  rather  liberal trade regime towards the Western Balkans, the ATMs abolish the remaining tariff ceilings for  practically  all  industrial  products  with  the  exception  of  certain  textile  products  and improve market access for agricultural and fishery products. ATMs are the forerunner to the conclusion of Stabilisation and Association Agreements (SAA), already concluded with the Former Yugoslav Republic of Macedonia (FYROM) and Croatia. Trade provisions of the EU-FYROM SAA entered into force on 1 June 2001, those of the EU-Croatia SAA on 1 January 2002 by means of an Interim Agreement. They aim at creating a free trade area on goods over a transitional period of ten years for FYROM and six years for Croatia and envisage a progressive and reciprocal liberalisation of trade in services. They also set out obligations in areas such as competition and state aid rules and intellectual and industrial property rights. The three other Western Balkan countries (Bosnia-Herzegovina, Albania and  Federal Republic  of  Yugoslavia)  which  benefit  from  the  ATMs  are  eligible for such Agreements as soon as they meet the relevant political and economic criteria. Under the EC Treaty, since 1958, the Overseas Countries and Territories (OCTs) are linked to the Community under a specific Association, the purpose of which is to promote the economic and social development of  these  dependent  countries  and  territories,  and  to  establish  close economic relations between them and the Community as a whole. In November 2001, the “Overseas Association Decision” was amended to better contribute to these aims and to promote the effective integration of the OCTs in the global economy, as well as developing their trade in both goods and services vis-à-vis regional and world markets. Therefo-

17 re, in addition to confirming the free access to the EU already provi- ded for OCT goods, the decision seeks to step up liberalisation and co- operation in services and trade-related areas over a ten-year period en- ding on 31 December 2011. 2.2 Free Trade Areas The EU has been linked to all ten Central and Eastern European coun- tries by Europe Agreements since 1999. As a result, industrial products are now in free circulation between the signatories and the EU since the beginning of 2001. Restrictions remain in only a few sectors, such as agriculture. The Europe Agreements also contain provisions regar- ding the free movement of services, payments and capital in respect of trade and investments, free movement of workers, and co-operation in the  field  of  environment,  transport  and  customs.  Furthermore,  they provide for legislative approximation with EU legislation, particularly in the areas relevant to the internal market, such as competition and protection to intellectual, industrial and commercial property. The As- sociation  Agreements  with  Cyprus  and  Malta  cover  similar  fields.  The EU has established a Customs Union with Turkey covering industrial products. Steel and coal products are in free circulation, whereas con- cessions have been exchanged by both parties in trade in agricultural products. Further negotiations started in 2000 to liberalise trade in ser- vices and public procurement. The  EU’s  bilateral  trade  relations  with  Switzerland  are  based  on  the existing agreements: the free-trade agreement of 1972. Since 1994 the EU and Switzerland have been involved in negotiations covering a wi- de  range  of  specific  sectors.  Seven  new  agreements  in  the  sectors  of free movement of persons, air and land transport, scientific and tech- nological co-operation, agriculture, conformity assessment and public procurement will enter into force in summer 2002. Since June 2001, ne- gotiations have been underway in the additional areas of statistics, en- vironment, trade in processed agricultural  products and co-operation against fraud, while negotiations on the taxation of savings are about to start. In April 2002 the European Commission decided to propose the start of negotiations with Switzerland in four new areas, including the establishment of an FTA on services.   The EU has concluded bilateral association agreements with 8 Medi- terranean countries. These agreements contain a political component, a trade  component,  and  a  co-operation  component.  The  agreements with  Tunisia,  Morocco  and  Jordan  have  entered  into  force  in  March 1998, March 2000 and May 2002 respectively. The trade provisions of the  agreements  with  the  Palestinian  Authority  (signed  in  February 1997) are being applied on an interim basis. Concerning Israel, a new Euro-Med  Association  agreement  entered  into  force  on  1  June  2000.

18 Agreements with Egypt and Algeria have been signed and need still to be ratified. The agreement with Lebanon has been initialled and the parties  intend  to  implement  the  commercial  part  on  the  basis  of  an Interim  agreement.  Negotiations  are  ongoing  with  Syria.  The  indivi- dual agreements foresee the establishment of a free trade area between each  country  and  the  EU  for  goods  and  progressive  opening  of  the agricultural markets. In addition, they contain provisions for liberalisa- tion in the area of services, capital movement and competition. The negotiations between the EU and the Cooperation Council for the Arab States of the Gulf  (GCC)  have  also  restarted  in  earnest  since  the  GCC  decided  to  apply  a  common customs tariff at the latest in 2005 and the adjustment of the original EU negotiating man- date, which dated from 1991. The EU and Mexico Free Trade Agreement entered into force on 1 July 2000. The positi- ve trade performances of both sides demonstrated the potentialities of this agreement: the EU has inverted the tendency to lose market share after the Mexico entry into NAFTA and Mexican products have found new diversified market opportunities in the EU. To favour a better use of the market access opportunities given by the progressive elimination of im- port duties, parties are now enhancing regular cooperation on non-tariff barriers. The FTA covers trade in goods to be fully completed for the most part by 2003 with limited longer transitional periods for Mexican industrial products until 2007 and for agricultural products until 2010. The FTA also covers services, public procurement, competition and IPR. Negotiations on an Association Agreement between the EU and Chile, which started at a first round of negotiations in April 2000, were finalised on 26 April 2002. The agreement will include a political dialogue, a co-operation pillar and a trade pillar. As for trade, apart from a free trade area in goods, services and government procurement, the future agree- ment is to include provisions regarding investment, customs and trade facilitation, intellec- tual  property rights,  competition  and  a  dispute settlement  mechanism. The  future  agree- ment is currently under internal adoption procedures. Negotiations on an Interregional Association Agreement with Merco- sur started in April 2000. The future agreement is to include a political dialogue, a co-operation pillar and a trade pillar. Negotiations are ta- king place on a bi-regional basis from customs union to customs uni- on. This reflects one of the key objectives of the EU vis-a-vis Merco- sur,  notably  the  strengthening  of  the  Mercosur  integration  process. The second stage of negotiations where launched in July 2001. By now, most text proposals  on the different negotiating items have been ex- changed.  In  addition,  both  sides  have  exchanged  their  tariff  offers. The third stage of negotiations is currently being prepared. Following the conclusion with South Africa of a Trade, Development and Co-operation Agreement  in  1999,  agreements  on  trade  in  wine  and  spirits  were  signed  on  28  January 2002. They have been applied provisionally since then. Negotiations on fisheries have yet to be concluded. 2.3. Regional Initiatives

19 The EU's trade relationship with Asia continues to be an important priority. The Economic Pillar of the Asia-Europe meeting (ASEM), established in 1996, links the EU and the 15 EU Member States with Japan, China, Korea, Thailand, Malaysia, the Philippines, Singapo- re,  Indonesia,  Vietnam,  and  Brunei  in  a  dialogue  process  aimed  at  facilitating  trade  and improving investment between all partners. The most recent Trade Facilitation Action Plan for 2002-2004 defines a number of objectives intended to reduce and eliminate barriers to trade in areas such as standards and certification, customs, IPR, SPS, and electronic com- merce.  In  trade  terms,  the  Asian  ASEM  partners  accounted  for  approximately  26%  of world exports in 2000 with the EU being their largest partner, and this region is the EU's own second most important destination for its imports. The EU’s relationship with the San José group and the Andean Community is based on two regional Framework Cooperation Agreements that entered into force 1999 and 1998 respectively. Both regions benefit from the EU’s GSP. The Madrid Summit in May 2002 agreed to new initiatives to negotiate political and co-operation Agreements between the EU and the two regions respectively, as well as to intensify bi-regional economic and trade cooperation. The aim is to establish conditions under which, after the completion of the DDA,  bi-regional Free Trade  Agreements  between the  EU  and  each  of  the  two  regions could become feasible and mutually beneficial.   2.4. Other bilateral relations Good trade relations between the EU and the United States have traditionally constituted an important element in the overall management of the trading system. During the period under review, close EU-US cooperation was certainly instrumental in achieving a successful outcome  at  Doha.  Bilateral  trade  relations  between  the  two  biggest  trade  entities  in  the world have also remained robust marked by the launch in 1995 of the New Transatlantic Agenda (NTA) and by an agreement in 1998 on the Transatlantic Economic Partnership (TEP).  Through  the  establishment  of  this  framework  the  parties  reaffirmed  their  shared commitment to strengthen the multilateral trading system and agreed to aim at breaking down remaining –mostly regulatory - barriers to trade across the Atlantic while preserving a high  level  of  protection  for  health,  safety,  consumers  and  the  environment.  This  part- nership produced substantial results in particular on mutual recognition of certain technical regulations in the area of goods, while negotiations are ongoing in the area of services (ar- chitects,  engineers,  insurance).  Moreover,  in  2002,  the  EU  and  US  developed  a  set  of Guidelines for Regulatory Co-operation and Transparency and agreed to launch a Positive Economic Agenda designed to expand this co-operative effort to other areas where mu- tually beneficial arrangements can be found. The EU and the US also agreed in 1999 on a set of principles to provide for an effective Early Warning System designed to prevent a number of disputes from escalating by facilitating their resolution at an early stage. Howe- ver, some disputes remain and among these our two major disagreements concern the US safeguard measures on steel and the lack of progress by the US in complying with WTO rulings  on  Foreign  Sales  Corporations  (FSC/ETI).  Both  sides  continue  to  seek  ways  to conclude an agreement on trade in wines. Discussions on an agreement are also ongoing to replace the current withdrawal of concessions in the ‘hormones’ case by compensation. Trade  relations  with  Canada  are  marked  by  the  EU-Canada  Joint Declaration and Action Plan of December 1996. Furthermore, the EU and  Canada  agreed  to  undertake  the  EU-Canada  Trade  Initiative (ECTI),  which  is  a  comprehensive  programme  covering  multilateral and  bilateral  trade  areas.  This  framework  of  co-operation  bore  early fruit  with  the  conclusion  of  agreements  on  Mutual  Recognition  of Conformity    Assessment,    Veterinary    equivalence,    Customs    co-

20 operation  and  co-operation  regarding  competition  matters.  Negotia- tions  towards  the  conclusion  of  an  agreement  on  trade  in  wines  and spirits are ongoing. In addition, Canada and the EU are currently en- gaged in an assessment of future measures to enhance their trade and investment relationship. This assessment would start with the exami- nation of the results of an on-going business survey on existing bar- riers  to  EU-Canada  trade  and  investment.  Finally,  the  Canadian  Go- vernment and the European Commission have recently agreed to ini- tiate a new regulatory co-operation dialogue. The EU and Japan share a strong commitment to the Multilateral Trading System. The close EU-Japan co-operation contributed to the adoption of the DDA. The EU has put the emphasis  of  its  bilateral  economic  dialogue  on  facilitating  market  access  for  goods  and services and improving the investment climate in Japan through structural reform. A two- way deregulation dialogue was launched in 1994 in the framework of which the EU and Japan exchange an annual list of proposals for regulatory reform in their partner’s respecti- ve markets. On 1 January 2002 a Mutual Recognition Agreement (MRA) entered into force which permits acceptance of conformity assessment conducted in one party according to the regulations of the other in four product areas. This marks an important step in facilita- ting market access. On 8 December 2001, the EU-Japan Summit launched a decade of co- operation  by  adopting  the  "EU-Japan  Action  Plan",  which  includes  the  objective  of strengthening the EU-Japan economic and trade partnership.   Joint declarations  on  bilateral relations with Australia (1997) and with New Zealand (1999) strengthen the dialogue for further liberalization of trade in goods and services. Mutual Recognition Agreements in relati- on to conformity assessments for goods have also been concluded with each  of  these  countries,  and  agreement  was  reached  on  a  veterinary agreement with New Zealand. A strengthening of trade relations between China and the EU is happening at both the multilateral  and  the  bilateral  level.  The  EU,  which  has  been  a  keen  advocate  of  China's accession to the WTO, has a three-fold strategy vis-à-vis China: monitoring the implemen- tation by China of her commitments made in the context of her WTO accession; suppor- ting this implementation and China's economic and trade reforms through partnership, in particular by offering EU expertise through a range of co-operation programmes; develo- ping cooperation with China on the DDA and engaging constructively in the new multila- teral negotiations. Bilaterally, the EU is addressing trade issues through its dialogue with China, the main forum for which are the EC-China Joint Committee and its subordinate bodies. The current relationship between Korea and the EU is founded on in- creasingly shared political values, strong economic links, and support for South Korea’s “sunshine” policy of engagement with the North. A notable sign of the progress in EU relations with Korea was the entry into  force,  on  1  April  2001,  of  the  Framework  Agreement  for  Co- operation  and  Trade.  This  Agreement  commits  both  parties  to  work towards fostering growth of two-way trade and investment, while pro- viding a better framework for economic co-operation.

21 EU relations with Russia and other countries of the CIS are based on the Partnership and Co-operation Agreements (PCAs) concluded over the last decade. Preliminary discus- sions have taken place between the EU and Russia to explore the concept of a "Common European Economic Space", which the two sides launched at the EU-Russia Summit in May 2001. The focus of this initiative is in the regulatory field. Stable relations with Russia and with the other CIS countries will remain critical for the EU, particularly as the next EU Enlargement  will  bring  a  number  of  Central  and  Eastern  European  Countries  into  the Union. Trade and economic issues will remain an important element of the EU's overall relationship with them. In addition, the EU has continued and will do so in the future to work for the early accession to the WTO on appropriate terms of Russia and other CIS countries  that  are  not  yet  members,  as  this  will  promote  the  closer  integration  of  these countries into the global economy. The  EU  and  India  continue  to  deepen  their  bilateral  trade  reflecting the  potential  of  the  two  sides,  to  strengthen  their  development  and economic cooperation and to improve the quality of the economic and trade links. Both sides continue to engage in a close “High level Eco- nomic Dialogue” and its sub-commissions where regular consultations on trade and others issues are held. At the 28 June 2000 Summit both sides agreed to establish a regular high level dialogue on WTO issues. The EU-India summit in autumn 2001 adopted the “Joint Initiative on enhancing trade and investment” with key joint recommendations. Regarding EU-Pakistan relations, a number of actions have been pre- pared,   including   the   signature   of   a   3^rd   Generation   Co-operation Agreement in November 2001. A comprehensive package of trade pre- ferences was agreed by the Council. Measures include a quota increase of  15%  for  textiles  and  clothing  products  and  zero  duty  imports  of clothing products under the GSP drug regime for the period 2002-2004. In May 2002, the European Commission adopted a five year strategy (2002-2006)  for  its  cooperation  with  Pakistan.  Priorities  set  in  this Country Strategy Paper include the development of trade. V. Future policy making During the period under review, the EU’s policy has had a strong focus on the prepara- tions of the WTO new round. Future policy making will continue to reflect the EU’s ap- proach which is to assume its responsibilities within the WTO, in particular to maintain a flexible approach in the multilateral trade fora, to contribute in a constructive and active manner to the current negotiating round and to ensure its successful conclusion. On the trade and development side, the EU is committed to make substantial efforts in order to address the concerns of developing countries at both bilateral and multilateral level. On the bilateral side, the EU will concentrate its work on new initiatives, notably the Economic Partnership Agreements (EPA) with the ACP countries. (1) The DDA negotiations The EU pushed hard for the new round, and was pleased that the decision on the DDA in Doha  resulted  in  the  launch  of  a  truly  comprehensive  round,  one  which  will  enable  the rules of the WTO to be strengthened and updated to reflect the economic realities of today

22 and which will be able to address, in a balanced way, the core interests of all WTO mem- bers. It seems evident that it will only be possible to conclude the round if it is equally ba- lanced and responsive to the interests of the whole of the WTO's membership. To achieve this goal remains the EU's primary multilateral trade policy objective for the next years.   The EU is therefore pleased to note that the decisions taken for the organisation of the DDA have ensured parity in treatment for all the DDA subjects, whether they are subjects for  which  negotiations  have  started  already  now  or  whether  they  are  subjects  for  which negotiations will only start after the 5^th Ministerial Conference. It reflects the recognition that each of the components of the DDA is a key factor in achieving an overall balanced result.   The EU also welcomes the fact that since Doha work under the DDA on substance pro- gresses well. Many WTO members have already produced substantive submissions on the various subjects under the DDA and the EU intends to continue itself to submit papers across the board of the DDA.   The EU considers it crucial to ensure comparable and substantial progress on all issues up to the 5^th WTO Ministerial in Mexico, since this will constitute an important staging post on the road to concluding a Single Undertaking in time for the 1 January 2005 deadline. In view of the EU, it will be perfectly feasible for the WTO membership to conclude the ne- gotiations in time, if the political will is there and if we make sufficient progress in order to ensure the success of the 5^th Ministerial Conference.   The EU intends to work together with all WTO members, who consider the conclusion of the DDA as a priority for strengthening the multilateral trading system, enhancing the pro- spects for  global  economic growth  and for  contributing  to  world-wide  sustainable  deve- lopment. (2) Trade and Development In addition to the efforts in the context of the DDA work programme, the EU is commit- ted to a broader strategy to help developing countries integrate in the multilateral trading system and the global economy. Trade-related technical assistance and capacity buil- ding are key components of this EU trade and development strategy.   In the year 2000, the Development Council and the European Commission adopted a Joint Declaration on the European Community’s Development Policy, and identified six priority areas for assistance. Linking Trade and Development figures as one of the six priorities, and is being complemented by priorities for Institutional Capacity Building, Transport, and support for Sound Macro-Economic Policies. Since then the European Commission has, and will continue to integrate trade capacity building, including supply side development, in its development assistance programmes, mainly through the process of Country and Regi- onal Strategy Papers. The allocation of specific funding for TRTA/CB is expected to be substantial and will be done through National and Regional Indicative Programmes. Several initiatives have already been taken by the Commission, notably for the ACP group of coun- tries:  a  €10  million  TA  programme  for  ACP  participation  and  application  of  the  WTO Agreements,  and  a  €20  million  TA  programme  for  TA  related  to  the  EPA  process. Furthermore the Commission will be organising seminars and workshops for negotiators and administrators from all developing countries. EU efforts towards more and better TRTA / CB at bilateral and multilateral levels should be seen in the overall context of a strategy for improved governance globally to support the integration of developing countries in the global economy for poverty reduction and sustainable development.

23 At a multilateral level the European Union contributed in the year 2002 around 60% of the value of the DDA Global Trust Fund. The European Union strongly supports the revam- ped Integrated Framework (IF) for Least Developed Countries, and participates actively in the IF bilateral donors meetings and the IF Steering Committee meetings. Contributions to the Integrated Framework Trust Fund amounted to more than 50% of the total as of Fe- bruary 2002. The European Commission has pledged to be lead donor for two IF countries in Africa.   The European Commission maintains intensive contacts with international institutions like the World bank, the IMF, UNCTAD, UNDP, ITC, WCO, etc and intends to do so in the future. The EU’s support for the new multilateral trade negotiations is but one element of broader efforts for improved governance globally. The EU sees Doha as part of a process which also comprises the Monterrey Conference in March 2002 on financing for development, which  defined  a  partnership  for  development  financing,  building  on  increased  assistance for better domestic policies; as well as the WSSD in Johannesburg in August 2002, which is expected to add to that global partnership the building blocks for sustainable development. The EU remains committed to this process, which builds on the Millennium Summit out- come and the Brussels 2001 Conference for the least-developed countries. (3) Bilateral Initiatives In the Cotonou Agreement, the ACP countries and the EU agreed to conclude new WTO compatible trading arrangements, removing progressively barriers of trade between them and  enhancing  cooperation  in  all  areas  relevant  to  trade.  It  was  agreed  that  Economic Partnership Agreements (EPAs) would be negotiated from September 2002 and would enter  into force  in  2008.  EPA  negotiations  will  take  a  comprehensive  approach  towards tackling the development challenges in ACP countries. They will build on regional integra- tion  initiatives  existing  within  the  ACPs,  at  a  level  and  in  accordance  with  procedures agreed by the ACPs. EPA arrangements shall take account of the level of development and socio-economic impact of trade measures on ACP countries, and their capacity to adapt to the liberalisation process. EPAs will include Free Trade Agreements in line with Art. XXIV GATT  between  the  EU  and  ACP  countries.  Negotiations  will  be  as  flexible  as  possible regarding the duration of a sufficient transitional period, the final product coverage, taking into account sensitive sectors, and the degree of asymmetry in terms of timetable for tariff dismantlement  -  while  remaining  in  conformity  with  WTO  rules.  EPAs  will  cover  a comprehensive economic co-operation which includes co-operation in trade-related areas such  as  competition  policy,  standardisation  and  certification,  protection  of  IPR,  sanitary and phytosanitary measures, trade and labour standards, consumer policy and -health. They will  be  prepared  and  accompanied  by  development  co-operation.  For  example  a  20  m€ programme for the pre-negotiation and preparatory phase has been put in place to help the ACPs to prepare for negotiations. VI.     Conclusion The EU remains committed to supporting, strengthening and further improving and deve- loping the multilateral trading system as it firmly believes in multilateralism and in the posi- tive impact it can have on economic growth, distribution of wealth, sustainable develop- ment and a better integration of poorer countries in the global economy.   Further trade and investment liberalisation and rule making, as well as the improvement of the functioning of the WTO system in order to make it work better for all members and all

24 citizens, will all remain priorities for the EU’s future trade policy agenda. The EU therefore continues  to  work  hard  internally  and  with  its  trading  partners  to  ensure  the  successful conclusion  of  an  ambitious  negotiating  round  within  the  3-year  timeframe.  At  the  same time the EU is committed to give substance to the commitments made in Doha on the development side of the agenda, in particular on trade-related technical assistance and ca- pacity building measures to help developing countries to fully participate in the multilateral trading system and to benefit from its positive impacts. As one of the world's major trading powers, the EU can exercise considerable influence on global trade and investment, but it is clear to the EU that this needs to be done together and in close co-operation with all of its other trading partners. The EU therefore continues to coordinate its activities with its trading partners in order to promote open and fair trade not only at a multilateral but also at a bilateral or regional level. The EU is convinced, ho- wever, that regional free trade agreements develop their full potential only where they build on  commitments  to  basic  international  principles  such  as  those  embodied  in  the  WTO. Increasingly, the EU’s approach to FTA’s will extend beyond goods and services liberalisa- tion to more comprehensive rule-making engagements. On the domestic side, the EU has opted for a combination of market opening with the necessary regulation in the economic, social and environmental field, and accompanied by a degree of redistribution of the gains of openness. Substantial progress has been made in this respect. The next big step ahead for the EU is to successfully manage a smooth enlar- gement process which will no doubt have its impacts at global level.   Europe’s growing influence in a globalised world has led it to focus on building political support for institutions and their rules, with the objective of strengthening and rebalancing the  various  pillars  of  global  governance  and  promoting  coherence  between  them.  The WTO is a key pillar of the international economic system and the Doha agenda now offers an unprecedented opportunity – which all must seize – to strengthen that pillar. More ge- nerally, however, the EU will in the months and years ahead devote all its tools of external policy (trade, development, political dialogue and diplomacy) to efforts to better harness globalisation, to promote sustainable development and to forge a global partnership with developing countries, Doha, Monterrey and Johannesburg are all key staging posts in fulfil- ling these objectives.