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Regulatory Policies-Single Market Program

Overview: The European Union's "1992" Single Internal Market was officially inaugurated on January 1, 1993 with the disappearance of most intra-EU border controls on movement of goods, services, and capital. While the legislative program is largely complete, gaps remain. Measures affecting certain specialized types of trade, such as that of precious metals and CITES-listed plant and animal species have not yet been adopted. The Schengen Accord on removing controls on people, agreed upon by nine member states (Austria has observer status), was to enter into force in February 1994 but has been delayed. When the accord goes into force, passport controls will be lifted at European airports on intra-EU flights; passport controls will continue on entry into Denmark, Ireland and the UK. Because necessary standards are not yet in place for many product-related directives, they will not immediately replace member-state regulation. Other measures have long grace periods before they come fully into effect. Transnational quotas are also still in effect on certain kinds of intra-EU road transport. Nor are all directives in effect fully implemented by member states; the average implementation rate stood about at 95 percent in October 1994.

Goods, Capital & Services: For goods, capital and services, the net effect should be freer movement, fewer member-state regulations for products and service providers to meet, and real consolidation of markets. Some aspects of the program raise problems for U.S. exporters, including directives on procurement for utilities and on television broadcasting, and conditions for negotiation of mutual recognition agreements on testing and certification of regulated products (all discussed in chapter 5 below).

Veterinary Regulations: In the area of veterinary regulation the EU adopted a large body of new legislation under the 1992 single market program that was designed to harmonize standards and complete the single market for live animals and animal products. In some cases, such as meat inspection, this means that Member State slaughter houses are now subject to the same requirements as facilities in third countries. However, in many areas where EU legislation did not previously exist, new Union-wide requirements that could pose problems for imports from third countries have been established. Notable among these is a set of new directives that will require every consignment of live animals or animal products entering the Union from third countries to undergo documentary, identity, and physical checks by veterinarians at designated frontier posts. Since January 1993, the uneven application of the Single Market provisions has been the cause of many trade problems. The U.S. Government and other principal suppliers of these products have entered into consultations with the Commission on the entire package of veterinary legislation with the objective of identifying areas where disruptions in trade can be avoided through the application of equivalence.

Environmental Measures: Pending environmental measures may also affect the trade and business climate. Among them, a proposal for a CO2/energy tax would substantially raise energy costs for industry, although no progress on the plan has been made since 1994. The debate continues over a packaging directive which could raise producer costs by mandating extensive recycling of packaging materials, possibly enforced by member-state fiscal and economic measures.

4. Debt Management Policies

Debt management policies are determined by the individual member states of the EU.

5. Significant Barriers to U.S. Service Exports

Broadcasting: The 1989 "Television Without Frontiers" directive requires a majority of television transmission time to be reserved for European programs where practicable. The United States believes that this provision is contrary to the spirit of the General Agreement on Tariffs and Trade (GATT). The U.S. and the EU were unable to resolve their differences over this issue at the Uruguay Round in 1993; the U.S. remains committed to continued work to achieve our objectives with the EU, i.e. to promote more open trade in audiovisual services and to ensure freedom of choice for consumers. The U.S. hopes that in the course of reviewing the 1989 directive, the EU does not either remove the element of flexibility contained in the quota provision or extend it to new services. The U.S. still reserves its ability to take Section 301 action against the EU on the issue.

Telecommunications: U.S. exports of telecommunications services and supplies are constrained by several EU practices. The United States has requested that the Union ensure that non-EU competitors have access to reserved services on an equal basis with EU competitors once those services are liberalized (e.g. infrastructure, voice telephony). Two other impediments to the trade in telecommunications goods

and services are intellectual property rights protections (European Telecommunications Standards Institute, or ETSI/Standards) and government procurement practices. These issues are addressed later in the report.

Standards, Testing, Labelling and Certification: The United States-EU_dialogue on standards, testing and certification has, on balance, been positive. The European standardization bodies have in general committed themselves to adopting international standards, although this varies depending on the body and the need. However, many non-European interests still find participation in European standardization bodies difficult and/or frustrating (i.e. limited access to the European Committee for Standardization/European Committee for Electro-technical Standardization through European industry associations, and limited voting power in ETSI). This frustration can also be felt at the international level in the International Standards Organization (ISO) and the International Electrical Committee, where the EU still wields 12 votes and the U.S. only one.

Central to standardization policy in the Union is the harmonization of requirements for "regulated" products, including products as diverse as toys and earth moving equipment. In order to circulate freely in the Single Market, these products will have to carry the CE Mark, denoting conformity to these harmonized requirements. It is anticipated that fifty percent of U.S. exports to the EU will eventually be required to carry the CE Mark. While the harmonization of these requirements and the drafting of European standards is supposed to facilitate market access, the overall CE Marking program has fallen behind schedule largely due to implementation and standardization problems.

A number of these "regulated" or CE Marking products are also candidates for Mutual Recognition Agreements (MRA's) between the United States and the EU. An MRA would allow manufacturers in the United States to have their products tested and certified to the EU requirements by recognized Notified Bodies in the United States, and vice versa. MRA's would reduce conformity assessments costs and the time it takes to bring a product to market. The United States and EU held preliminary discussions in October 1992 and June 1993. In November 1993, the EU formally selected the United States as a priority country along with Canada, Australia and New Zealand. U.S. and EU officials held three rounds of negotiations in April, June and November 1994 in the following areas: pharmaceuticals, telecommunications, electrical products, medical devices, lawn mower safety equipment, and recreational craft.

ETSI/IPR: On September 5, 1994, ETSI abandoned its March 1993 IPR policy that had differed significantly from those long considered to be international norms (ISO and International Telegraph and Telephone Consultative Committee). In late September, the U.S. Computer and Business Equipment Manufacturer's Association (CBEMA), which had lodged a complaint with the European Commission's Competition Directorate (DG IV) asserting that the original ETSI policy violated Articles 85 and 86 of the Treaty of Rome, conditionally offered to withdraw its DG IV filing in light of ETSI abandonment of the March 1993 IPR policy. CBEMA's condition for withdrawing the policy was that ETSI also withdraw its separate DG IV request for a waiver of the same articles of the Treaty of Rome. In close consultation with U.S. business and the European Commission, the U.S. has supported efforts by all parties to reach a new, consensus ETSI/IPR policy. Until a new policy is adopted, it is difficult to determine whether or to what extent ETSI/IPR policy may remain an impediment to U.S. purveyors of telecommunications goods and services.

Government Procurement Practices: On April 13, 1994, the United States and the European Union reached an agreement on government procurement, most of which will be incorporated into the GATT Government Procurement Agreement that was signed on April 15, 1994. The United States-EU agreement will dramatically expand public procurement opportunities to over $100 billion on each side. Sub-national government agencies and electrical utilities on each side will for the first time guarantee equal treatment to the other side's firms on a permanent basis.

Unfortunately, the EU was not willing to include telecommunications in the agreement, leaving in place the discriminatory provisions of the Utilities Directive in that sector with respect to bids that do not meet a 50 percent EU content requirement. The United States therefore decided to keep in place its retaliation against this practice.

Other Significant Potential or Existing Barriers to U.S. Exports:

Leghold Traps: A ban on imports and domestic sales of fur from animals caught in leghold traps will come into force January 1, 1996 unless agreement is reached on international standards for humane trapping. During 1994 the EU extended the deadline for the ban by one year from January 1995, citing progress toward international standards.

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Animal Testing of Cosmetics: An amendment to the cosmetics directive will ban sales in the EU of cosmetics whose ingredients were tested on animals from 1998, unless the Commission determines there are still no feasible alternatives.

Data Privacy: The European Commission has proposed a directive to set minimum standards in the EU concerning "protection of individuals in relation to the processing of certain personal data." Many U.S. companies are concerned that depending on how it is implemented, this directive could adversely affect them by restricting their operations in the EU or the transfer of data between the United States and the Union. The latter case could even prevent intra-company data transfer. These concerns are shared by EU industry. U.S. experts will continue to monitor this issue and consult with EU officials.

Wine Certification and Enological Practices: U.S. wine exports continue to face uncertain market access into the European Union. The United States would like the EU to make permanent the current temporary derogations whereby U.S. wine producers can use wine treatment practices which are not approved in the Union, and U.S. wine exporters can use a simplified export certificate. The Union continues to link these access questions to the U.S. commitment for greater protection for EU wine names in the United States.

Whiskey: During 1994 the United States and the EU concluded an agreement whereby the EU provides recognition to Bourbon Whiskey and Tennessee Whiskey as distinctive products of the United States in exchange for U.S. recognition of Scotch Whisky, Irish Whisky, Cognac, Armagnac, Calvados and Brandy de Jerez. The EU, however, has not agreed to cover a third product, American Blended Whiskey (ABW) in the new agreement because the current EU distilled spirits regulation maintains that ABW cannot be labeled a whiskey product due to insufficient aging. The U.S. Government will continue to seek to restore access for ABW into the EU market.

Third Country Meat Directive and Hormone Ban: A November 1992 exchange of letters laid down the terms for an improved working relationship between the U.S. and EU meat inspection services and paved the way for the approval earlier this year of a number of U.S. slaughterhouses. Under the terms of the agreement, this is seen as an interim stage in a process leading ultimately to certification by the USDA that U.S. establishments meet EU standards.

Despite the progress made toward resolving the dispute over meat inspection, U.S. exports of beef and beef products to the Union will continue to be severely limited as long as the EU's hormone ban remains in place. This ban took effect January 1, 1988. It applies to meats and meat products imported into the EU after January 1, 1989, with the exception of meats for pet use. The ban has caused trade damage to U.S. exports estimated at $97 million a year. In response, the United States imposed 100 percent tariffs on imports of EU agricultural products valued at $97 million. This level of retaliation was adjusted downward in July and December 1989 to reflect this partial resumption of U.S. exports of meats that are not treated with hormones.

EU Ban on Bovine Somatotropin (BST): An EU moratorium on the use and marketing of Bovine Somatotropin (BST), a synthetic protein that stimulates increased milk production in cows, has been in effect since April 1990. In December 1993, the EU Council of Ministers voted to extend this moratorium through December 31, 1994, in order to examine the implications of the ban, its consequences for trade, and the experience of countries where the use of BST is authorized. The EU has also taken the unusual step of barring individual member state licensing of BST, requiring license approval at the Union level.

Scientific and technical study to date in both the United States and Europe has found no health or other hazards in the use of BST, and the U.S. Food and Drug Administration has approved its use in the United States. However, the Commission as well as European consumer groups, critics of biotechnology, and small farmers (who fear increased supplies of cheap milk) oppose its use. An important factor in the Commission's decision is the impact increased milk production resulting from the use of BST will have on the EU's budget for farm price supports. Because of the high cost of farm subsidies under the CAP, the EU already has strict milk production quotas.

Given the fact that the U.S. Food and Drug Administration review has established scientifically that the drug does not pose a threat to human or animal health, the United States has serious trade concerns with the EU's BST policy.

Oilseeds: A central element of the Blair House Accord is the text on oilseeds which establishes limits on oilseeds market supports and establishes a mechanism to further limit support if oilseeds production area exceeds certain limits, the separate base area (SBA) for oilseeds. The Commission has announced that it plans to exclude oilseed production by farmers under simplified crops scheme (principally for

small farmers). The United States feels strongly that all areas for which compensatory payments are received must be counted under SBA plan for oilseeds.

Quota and Import Licensing for Bananas: On July 1, 1993, the European Union implemented an import quota regime for bananas that is administered using import licenses. The EU developed the new regime as part of its single market exercise. U.S. companies have seen a significant erosion of their market share in Europe because the quota that applies to imports of bananas from Central and Latin America is significantly smaller than recent import volumes. Moreover, the licensing system includes elements that discriminate against third country importers to the benefit of EU firms. After losing two GATT panel cases, the EU negotiated a framework agreement with Costa Rica, Colombia, Nicaragua, and Venezuela which allocated specific quota levels to those four countries, and which raises the possibility of further discrimination against U.S. firms. On October 17, USTR decided to initiate an investigation under Section 301 of the 1974 Trade Act of the EU banana regime. Shipbuilding Subsidies: EU member states provide subsidies and other forms of assistance to their shipbuilding and repair industries. The European Commission sets ceilings for subsidies annually. In 1994, the ceiling was nine percent of gross investment for new ships and 4.5 percent for conversions and small vessels. The Commission has proposed extending this ceiling through December 31, 1995. On June 8, 1989 the Shipbuilders Council of America (SCA) filed a Section 301 petition, seeking elimination of subsidies and trade distorting measures for the commercial shipbuilding and repair industry. In response, USTR undertook to negotiate a multilateral agreement in the OECD to eliminate all subsidies for shipbuilding by the OECD member countries. An agreement was reached in July 1994 and is expected to be signed in December. It is scheduled to take effect January 1, 1996, following ratification by all signatories.

6. Export Subsidy Policies

Agricultural Subsidies: Export subsidies (also known as export restitutions or refunds) are widely used by the EU to offset competitive disadvantages of EU agricultural exports caused by high EU internal support prices. Export subsidies enable the EU to dispose of its surplus production at prices that match, and often undersell, U.S. agricultural exports to foreign markets. The impact on U.S. agricultural exports, particularly grain exports, runs in the order of billions of dollars. Export subsidies, however, were subject to disciplines as a result of the Uruguay Round. As that agreement is implemented, therefore, there will be progressive reductions in the value and volume of subsidized agricultural exports.

7. Protection of U.S. Intellectual Property

The European Commission is committed to securing a high level of protection for intellectual property rights (IPR) in the EU. The Commission believes that completion of the Single Market requires harmonization of the scope of IPR protection so that trade and investment within the Union will not be distorted based on dif ferences in the scope of intellectual property protection among the member states. The Commission has proposed directives in certain areas where inadequate IPR protection is seen as a hindering development of EU industry (biotechnology, data bases) and has adopted directives covering software, pharmaceuticals, and semiconductor topologies. Other IPR measures completed include a Community Trademark harmonization regime and a Community Patent Convention, but they will not be fully implemented until 1996. Additional legislation will eventually harmonize regimes covering industrial design and biotechnological inventions.

In the copyright area, the EU Council has adopted directives establishing rental and lending rights, harmonizing neighboring rights and the term of protection, and creating a system for protecting works transmitted by satellite and cable retransmission. It remains to be seen whether the directives will give full protection to U.S. right-holders and whether U.S. film producers and the works-for-hire system will be fully respected.

The EU adopted in May 1991 a directive requiring member states to protect software as a literary work within the meaning of the Bern Convention. Member states were required to implement the directive in national legislation no later then January 1, 1993, but a number had not completed action by that date. The directive differs from U.S. law by allowing decompilation carried out under certain circumstances for purposes of obtaining information necessary for inter-operability. Although U.S. industry was satisfied with the final compromise reached by the Council, the U.S. Government will closely monitor implementation of the directive to ensure that U.S. right-holders are protected.

8. Workers Rights

Worker rights are discussed in the individual country sections of the report. However, it is worth noting that the EU Commission has proposed to Member States that GSP beneficiaries be offered an extra margin of preference if they meet certain worker rights standards. It is not yet clear whether the proposal will be accepted by Member States.

Extent of U.S. Investment in Selected Industries.—U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

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Prior to 1993, the European Union was known as the European Communities. The European Union comprises Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, and the United Kingdom. As of January 1, 1995, it will also include Austria, Finland and Sweden. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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