WTO Rules Relating to Regional Trade Agreements - UNITAR

11

WTO Rules on Regional WTO Rules on Regional

Trade AgreementsTrade Agreements

Edwini KessieEdwini Kessie

(([email protected]@wto.org))

CC--TNC Division, WTOTNC Division, WTO

22

Outline of PresentationOutline of Presentation�� The NonThe Non--Discrimination PrincipleDiscrimination Principle

–– The Most Favoured Nation Clause (MFN)The Most Favoured Nation Clause (MFN)

–– National Treatment PrincipleNational Treatment Principle

–– Implications of the MFN principleImplications of the MFN principle

–– RTAs an exception to the MFN principleRTAs an exception to the MFN principle

�� Why are RTAs proliferating?Why are RTAs proliferating?–– Disappointment with the MTS (Tokyo Round; Disappointment with the MTS (Tokyo Round;

Uruguay Round and the Doha Ministerial Uruguay Round and the Doha Ministerial Declaration (treatment of the Singapore Declaration (treatment of the Singapore issues)issues)

–– Economic reasonsEconomic reasons

–– Geopolitical considerationsGeopolitical considerations

33

Outline of PresentationOutline of Presentation

�� Why did the GATT contracting parties allow Why did the GATT contracting parties allow

derogation from the nonderogation from the non--discrimination discrimination

principle to permit countries to form free principle to permit countries to form free trade areas and customs unions?trade areas and customs unions?

�� Do the provisions of Article XXIV ensure Do the provisions of Article XXIV ensure

that RTAS would be complementary to the that RTAS would be complementary to the

MTSMTS

�� Evaluation of RTAs concluded in the GATT Evaluation of RTAs concluded in the GATT years years -- Simplicity of agreements and Simplicity of agreements and

limited number of GATT contracting partieslimited number of GATT contracting parties

44

Outline of PresentationOutline of Presentation�� GATT/WTO RulesGATT/WTO Rules

–– Article XXIV of the GATT 1994Article XXIV of the GATT 1994

–– Article V of the GATSArticle V of the GATS

–– The Enabling ClauseThe Enabling Clause

–– Waivers Waivers -- Article IX of the Marrakesh Article IX of the Marrakesh Agreement Establishing the WTO (e.g. The Agreement Establishing the WTO (e.g. The Cotonou Agreement)Cotonou Agreement)

�� Procedural AspectsProcedural Aspects

�� Review of Relevant Case LawReview of Relevant Case Law

�� How can WTO rules be strengthened and How can WTO rules be strengthened and

the examination process improved?the examination process improved?

�� Doha Ministerial DeclarationDoha Ministerial Declaration

55

RTAs RTAs -- Building Blocks or Building Blocks or

Stumbling BlocksStumbling Blocks�� Are RTAs supportive of the multilateral Are RTAs supportive of the multilateral

trading system or do they undermine its trading system or do they undermine its effectiveness? effectiveness?

�� Divergences in the views of trade Divergences in the views of trade economists. Whereas Fred Bergsten economists. Whereas Fred Bergsten and Lawrence Summers are strong and Lawrence Summers are strong supporters of bilateralism/regionalism, supporters of bilateralism/regionalism, others including Bhagwati, Panagariya others including Bhagwati, Panagariya are sceptical about RTAs.are sceptical about RTAs.

66


Stumbling BlocksStumbling Blocks�� Proponents Proponents -- Bicycle theory, especially in Bicycle theory, especially in

between trade rounds. NAFTA, for example, between trade rounds. NAFTA, for example,

provided an impetus to the Uruguay Round provided an impetus to the Uruguay Round

(Services and TRIMS)(Services and TRIMS)

�� Empirical studies seem to suggest that RTAs Empirical studies seem to suggest that RTAs

have remained supportive of the MTS. A WTO have remained supportive of the MTS. A WTO

study in 1995 concluded that there was no study in 1995 concluded that there was no

tension between the two and they have tension between the two and they have

complemented each other. Baldwin complemented each other. Baldwin -- review of review of

the operation of the EEC had had a positive the operation of the EEC had had a positive

impact on the global economyimpact on the global economy

77


Stumbling Blocks Stumbling Blocks

�� Critics argue that by their very nature RTAs Critics argue that by their very nature RTAs

divert trade, especially where the partner divert trade, especially where the partner

countries impose very high external tariffs countries impose very high external tariffs (Trade Diversion V Trade Creation: Jacob (Trade Diversion V Trade Creation: Jacob

Viner)Viner)

�� RTAs encourages the shifting of resources RTAs encourages the shifting of resources

which could have been invested in the MTS: which could have been invested in the MTS:

Political capital wasted; Not enough Political capital wasted; Not enough

attention to the MTSattention to the MTS

88


Stumbling Blocks Stumbling Blocks

�� Different and competing rules make it difficult to Different and competing rules make it difficult to negotiate multilateral rules in new areas, as each negotiate multilateral rules in new areas, as each bloc is likely to insist on the superiority of its rules bloc is likely to insist on the superiority of its rules (Singapore Issues (Singapore Issues -- Investment and Competition Investment and Competition Policy)Policy)

�� Proliferation of RTAs risk marginalising further Proliferation of RTAs risk marginalising further developing countries, particularly leastdeveloping countries, particularly least--developed developed countriescountries

�� View of developing countriesView of developing countries-- while critical of while critical of megamega--trading blocs, view that RTAs could trading blocs, view that RTAs could prepare them to compete effectively in the MTSprepare them to compete effectively in the MTS

99

Motivation for RTAsMotivation for RTAs

–– Efficiency considerationsEfficiency considerations

–– Trade ExpansionTrade Expansion

–– Means of attracting FDIMeans of attracting FDI

–– Political considerations Political considerations -- confidence confidence

buildingbuilding

–– Easy accession to RTAs and easy Easy accession to RTAs and easy administrationadministration

1010

Motivation for RTAsMotivation for RTAs

–– Credibility to Domestic ReformsCredibility to Domestic Reforms

–– Locking in of Domestic ReformsLocking in of Domestic Reforms

–– Increased Negotiating Leverage in Increased Negotiating Leverage in

the WTO and other forathe WTO and other fora

1111

Types of RTAsTypes of RTAs

�� Free Trade Areas Free Trade Areas √√

–– Elimination of barriers to trade between parties; Elimination of barriers to trade between parties;

each party maintains its own external tariffseach party maintains its own external tariffs

�� Customs Unions Customs Unions √√

–– Elimination of barriers to trade between parties; Elimination of barriers to trade between parties;

constituent members maintain common constituent members maintain common

external tariffsexternal tariffs

�� Common Market Common Market -- Customs Unions Customs Unions -- Free Free movement of factors productionmovement of factors production

�� Economic Unions Economic Unions -- currency and common currency and common fiscal expendituresfiscal expenditures

1212

Quantifying the proliferation of RTAsQuantifying the proliferation of RTAs

�� As of December 2006, 367 RTAs have been notified As of December 2006, 367 RTAs have been notified to the GATT/WTO of which 214 are in forceto the GATT/WTO of which 214 are in force

�� 158 RTAs cover trade in goods; 43 trade in 158 RTAs cover trade in goods; 43 trade in services; and 13 are accessions to existing RTAsservices; and 13 are accessions to existing RTAs

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

No. of R

TA

s

0

50

100

150

200

250

Goods Services Accessions Cumulative

05

101520253035404550556065707580859095

100

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

No

. o

f R

TA

s

0

50

100

150

200

250

300

350

400

Notified RTAs (goods, services & accessions) Inactive RTAs

Cumulative RTA notifications Cumulative active RTAs

1313

Quantifying the proliferation of RTAsQuantifying the proliferation of RTAs

�� Out of the total, 124 RTAs were notified during the Out of the total, 124 RTAs were notified during the GATT years and 243 RTAs during the WTO yearsGATT years and 243 RTAs during the WTO years

�� Of the RTAs notified during the GATT years only Of the RTAs notified during the GATT years only 36 remain in force today36 remain in force today

0

20

40

60

80

100

120

140

160

180

200N

o.

of

no

tifi

ed

RT

As

In force Inactive In force Inactive

Enabling Clause

Article V

Article XXIV

1947-1995 1995-2006

WTO

1414

Typology of RTAsTypology of RTAs

�� FTAs account for the FTAs account for the great majority of great majority of RTAs notified and in RTAs notified and in forceforce

�� ...and an even greater ...and an even greater

share of projected share of projected RTAsRTAs

Notified RTAs in force as of December 2006

RTAs signed, under negotiations and proposed

84%

8%8%

FTA

Customs Union

Partial Scope

92%

1% 7%

FTA

Customs Union

Partial Scope

1515

Configuration of RTAsConfiguration of RTAs

�� Bilateral RTAs Bilateral RTAs account for the account for the majority of RTAs majority of RTAs notified and in force notified and in force and of future RTAsand of future RTAs

�� CrossCross--regional RTAs regional RTAs account for a large account for a large share of future RTAsshare of future RTAs

RTA configuration as of December 2006RTA configuration as of December 2006

CrossCross--regional RTAs as of December 2006regional RTAs as of December 2006

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

In Force

Signed/Neg

Proposed

Bilateral Plurilateral

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

In Force

Signed/Neg

Proposed

Intra-Regional Cross-Regional

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Note: developed economies include Canada, the United States, EU, EFTA, Japan, Australia and New Zealand; transition economies include the former Soviet Union, Eastern and Central Europe, the Baltic States and the Balkans; the remaining countries are classified as developing

Notified RTAs in goods by type of partner as of December 2006

5%

25%5%

27%

11%

27%

Developed only Developed-Developing Developed-Transition

Developing only Developing-Transition Transition only

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Note: developed economies include Canada, the United States, EU, EFTA, Japan, Australia and New Zealand; transition economies include the former Soviet Union, Eastern and Central Europe, the Baltic States and the Balkans; the remaining countries are classified as developing

Notified North-South RTAs in goods by developed country type of

partner as of December 2006

14

8

34

11

4

3

EU

US

New Zealand

Canada

EFTA

Australia

Japan

1818

Global RTA landscape: goodsGlobal RTA landscape: goods

Participation in RTAs (goods) as of December 2006

1 to 4 5 to 9 10 to 19 20 to 26 No data

1919

Global RTA landscape: goodsGlobal RTA landscape: goods

Projected participation in RTAs (goods) as of December 2006

1 to 41 to 4 5 to 9 10 to 19 20 to 29 30 to 40 No Data

2020

Global RTA landscape: servicesGlobal RTA landscape: services

Participation in RTAs (services) as of December 2006

1 to 41 to 2 3 to 5 6 to 8 9 to 13 No data

2121

Global RTA landscape: servicesGlobal RTA landscape: services

Projected participation in RTAs (services) as of December 2006

1 to 41 to 4 5 to 9 10 to 14 15 to 19 20 to 25 No Data

2222

Global RTA landscapeGlobal RTA landscape

Free Trade Area of the

Americas (FTAA)

Euro Mediterranean Free

Trade Area

African Economic

Community

ASEAN

+ 3

ASEAN + 3

+ SAFTA

and CER?

Consolidation in regional blocks?

2323

Global RTA landscapeGlobal RTA landscapeOr fragmentation in cross-regional RTAs?

United

States

EC

EFTA

Mexico

Chile

S. Africa

Singapore

MERCOSUR

GCC

Australia

N. Zealand

ASEAN

Japan

KoreaJordan

Israel

ECOWAS

CEMAC

SACU

ESA

Morocco

ChineseTaipei

Panama

Bahrain

Thailand

India

Signed / In Force

Under Negotiation

Under Consideration

China

SAD

C

Egypt

PAC

IFICEPA

CARIFORUM

Canada

2424

Article XXIV of the GATT 1994Article XXIV of the GATT 1994

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WTO RulesWTO Rules

�� Article XXIV:4 of the GATT 1994 Article XXIV:4 of the GATT 1994 ––

Guiding principleGuiding principle–– Article XXIV:4: Article XXIV:4: ““The contracting parties recognize the The contracting parties recognize the

desirability of increasing freedom of trade by the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer development, through voluntary agreements, of closer integration between the economies of the countries integration between the economies of the countries parties to such agreements. parties to such agreements. They also recognize that They also recognize that the purpose of a customs union or of a freethe purpose of a customs union or of a free--trade area trade area should be to facilitate trade between the constituent should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other territories and not to raise barriers to the trade of other contracting parties with such territories.contracting parties with such territories.”” (italics added)(italics added)

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WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994

–– Does it create a separate obligation which Does it create a separate obligation which

has to be complied with by WTO Members has to be complied with by WTO Members

wishing to form free trade areas or customs wishing to form free trade areas or customs

unions?unions?

–– Differing views. Usually third countries Differing views. Usually third countries

have insisted that it creates a separate have insisted that it creates a separate

obligation which has to be complied with obligation which has to be complied with

independently of other provisions of Article independently of other provisions of Article

XXIV.XXIV.

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WTO RulesWTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– View not shared by Members entering into free View not shared by Members entering into free

trade agreements or customs unions. The trade agreements or customs unions. The European Union has always disputed this view. European Union has always disputed this view. According to it, if Article XXIV:4 were to be held According to it, if Article XXIV:4 were to be held to create a separate obligation, it would render to create a separate obligation, it would render the first sentence of Article XXIV:5 meaningless.the first sentence of Article XXIV:5 meaningless.

–– In the review of the Treaty of Rome, the EEC In the review of the Treaty of Rome, the EEC argued before a subargued before a sub--group of the Working Party group of the Working Party that only paragraphs 5that only paragraphs 5--9 of Article XXIV had to 9 of Article XXIV had to be complied with. be complied with.

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WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– This view was rejected by some members of the This view was rejected by some members of the

Working Party, who thought the EECWorking Party, who thought the EEC’’s interpretation s interpretation would permit it to raise barriers to the trade of third would permit it to raise barriers to the trade of third countries: countries: �� Most members of the SubMost members of the Sub--Group were not prepared to accept this Group were not prepared to accept this

interpretation. They believed that paragraph 4 establishes the interpretation. They believed that paragraph 4 establishes the basic principles which a customs union should apply to be basic principles which a customs union should apply to be consistent with the objectives of GATT. Where questions arise consistent with the objectives of GATT. Where questions arise as to the application of the provisions of paragraphs 5 to 9 inas to the application of the provisions of paragraphs 5 to 9 inparticular cases, such questions should be resolved in a manner particular cases, such questions should be resolved in a manner consistent with the principles embodied in paragraph 4. Some consistent with the principles embodied in paragraph 4. Some members of the Submembers of the Sub--Group felt, furthermore, that the Group felt, furthermore, that the CONTRACTING PARTIES would have to verify whether the CONTRACTING PARTIES would have to verify whether the application of paragraphs 5 to 9 is consistent with the aim of aapplication of paragraphs 5 to 9 is consistent with the aim of acustoms union as defined in paragraph 4customs union as defined in paragraph 4””

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WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– The Understanding on the Interpretation of Article XXIV The Understanding on the Interpretation of Article XXIV

addresses this issue but in very general terms. It addresses this issue but in very general terms. It provides that:provides that:�� ““[c]ustoms unions, free[c]ustoms unions, free--trade areas, and interim trade areas, and interim

agreements leading to the formation of a customs union or agreements leading to the formation of a customs union or freefree--trade area, to be consistent with Article XXIV, must trade area, to be consistent with Article XXIV, must satisfy, satisfy, inter aliainter alia, the provisions of paragraphs 5, 6, 7 and 8 , the provisions of paragraphs 5, 6, 7 and 8 of that Article.of that Article.””

–– Instead of clarifying the situation, the Understanding Instead of clarifying the situation, the Understanding made the situation more murkier. It did not answer the made the situation more murkier. It did not answer the question which other provisions had to be complied question which other provisions had to be complied with.with.

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WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– Issue as to whether the second sentence of Article Issue as to whether the second sentence of Article

XXIV:4 creates a separate obligation was XXIV:4 creates a separate obligation was addressed in addressed in Turkey Turkey -- Restrictions on Imports of Restrictions on Imports of Textile and Clothing ProductsTextile and Clothing Products

�� The fundamental issue in that case was whether The fundamental issue in that case was whether Article XXIV of GATT 1994 obligated Members of Article XXIV of GATT 1994 obligated Members of the WTO which are parties to a regional trade the WTO which are parties to a regional trade arrangement (customs union) to have the same arrangement (customs union) to have the same commercial policy towards third countries and, if it commercial policy towards third countries and, if it did, whether it justified the introduction of did, whether it justified the introduction of quantitative restrictions prohibited by GATT 1994 quantitative restrictions prohibited by GATT 1994 and the Agreement on Textiles and Clothing and and the Agreement on Textiles and Clothing and Article XI of GATT 1994. Article XI of GATT 1994.

3131

WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– Turkey argued that Article XXIV:4 did not Turkey argued that Article XXIV:4 did not

create a separate obligation, and that the create a separate obligation, and that the obligations which had to be complied with obligations which had to be complied with by Members were set out in paragraphs 5by Members were set out in paragraphs 5--8 of the Article.8 of the Article.

–– India argued that the guiding principle in India argued that the guiding principle in Article XXIV:4 had to be respected by all Article XXIV:4 had to be respected by all WTO Members entering into RTAs, WTO Members entering into RTAs, otherwise WTO rules would be abused and otherwise WTO rules would be abused and rendered ineffective.rendered ineffective.

3232

WTO RulesWTO Rules�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994

–– IndiaIndia’’s argument was supported by a number of s argument was supported by a number of countries:countries:

�� ““Members had established a standard, Members had established a standard, separate and distinct from the standard separate and distinct from the standard imposed under Article XXIV:5, for the imposed under Article XXIV:5, for the implementation of the phrase "not to raise implementation of the phrase "not to raise barriers to the trade of other contracting barriers to the trade of other contracting parties" in Article XXIV:4, since the preamble parties" in Article XXIV:4, since the preamble of the Understanding on Article XXIV provided, of the Understanding on Article XXIV provided, among others, that in the formation or among others, that in the formation or enlargement of RTAs "the parties to them enlargement of RTAs "the parties to them should to the greatest possible extent avoid should to the greatest possible extent avoid creating adverse effects on the trade of other creating adverse effects on the trade of other Members".Members".

3333

WTO Rules WTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– The Panel rejected IndiaThe Panel rejected India’’s argument on this s argument on this

point. It held that Article XXIV:4 did not point. It held that Article XXIV:4 did not

create a separate obligation:create a separate obligation:�� ““[w]hile not expressed as an obligation, paragraph [w]hile not expressed as an obligation, paragraph

4 (and its elaboration in the fifth paragraph of the 4 (and its elaboration in the fifth paragraph of the

Preamble of the GATT 1994 Understanding on Preamble of the GATT 1994 Understanding on

Article XXIV) argues against an interpretation of Article XXIV) argues against an interpretation of paragraph 5(a) that would read into that paragraph paragraph 5(a) that would read into that paragraph

an exception to GATT rules that prohibit specific an exception to GATT rules that prohibit specific

trade barriers.trade barriers.””

3434

WTO RulesWTO Rules

�� Article XXIV:4 of the GATT 1994Article XXIV:4 of the GATT 1994–– The PanelThe Panel’’s ruling on this point was endorsed by the s ruling on this point was endorsed by the

Appellate Body:Appellate Body:

�� ““Paragraph 4 contains purposive, and not operative, language. Paragraph 4 contains purposive, and not operative, language.

It does not set forth a separate obligation itself but, rather, It does not set forth a separate obligation itself but, rather, sets sets

forth the overriding and pervasive purpose for Article XXIV forth the overriding and pervasive purpose for Article XXIV

which is manifested in operative language in the specific which is manifested in operative language in the specific

obligations that are found elsewhere in Article XXIV. Thus, theobligations that are found elsewhere in Article XXIV. Thus, the

purpose set forth in paragraph 4 informs the other relevant purpose set forth in paragraph 4 informs the other relevant

paragraphs of Article XXIV, including the chapeau of paragraph paragraphs of Article XXIV, including the chapeau of paragraph

5. For this reason, the chapeau of paragraph 5, and the 5. For this reason, the chapeau of paragraph 5, and the

conditions set forth therein for establishing the availability oconditions set forth therein for establishing the availability of a f a

defence under Article XXIV, must be interpreted in the light of defence under Article XXIV, must be interpreted in the light of

the purpose of customs unions set forth in paragraph 4. The the purpose of customs unions set forth in paragraph 4. The

chapeau cannot be interpreted correctly without constant chapeau cannot be interpreted correctly without constant

reference to this purpose.reference to this purpose.””

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WTO Rules WTO Rules


––Could the issue be taken as settled?Could the issue be taken as settled?

––Some Members may want this issue Some Members may want this issue to be reto be re--visited in the context of the visited in the context of the negotiations on RTAs. View that negotiations on RTAs. View that third partiesthird parties’’ rights would be better rights would be better protected if Article XXIV:4 were held protected if Article XXIV:4 were held to create a separate obligation to create a separate obligation

3636

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– One of the most controversial provisions One of the most controversial provisions

in the GATTin the GATT

–– General intent is to protect the interests General intent is to protect the interests of third countries and prevent parties to of third countries and prevent parties to a RTA from imposing unjustified a RTA from imposing unjustified restrictions on the trade of third countriesrestrictions on the trade of third countries

–– Article based on a number of Article based on a number of assumptionsassumptions

3737

WTO Rules WTO Rules �� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994

–– According to a communication submitted by Australia:According to a communication submitted by Australia:�� ““GATT Article XXIV:5 is concerned with the relationship of GATT Article XXIV:5 is concerned with the relationship of

the parties to customs unions and free the parties to customs unions and free -- trade areas with trade areas with nonnon--members. It is based on four assumptions. members. It is based on four assumptions. The firstThe first, , an obvious one, is that there is a difference between free an obvious one, is that there is a difference between free --trade areas and customs unions. trade areas and customs unions. SecondSecond, it assumes that , it assumes that each constituting party maintained a set of duties and each constituting party maintained a set of duties and other regulations of commerce before the customs union other regulations of commerce before the customs union or free or free -- trade area entered into force. trade area entered into force. ThirdThird, it accepts , it accepts that the details of their incidence on third countries may be that the details of their incidence on third countries may be varied in the negotiations leading to the formation of the varied in the negotiations leading to the formation of the new arrangement. new arrangement. FourthFourth, it insists that on the whole, the , it insists that on the whole, the duties and other regulations applied against nonduties and other regulations applied against non--parties parties must be no higher or more restrictive than they were must be no higher or more restrictive than they were before the arrangement was put in placebefore the arrangement was put in place””

3838

WTO Rules WTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– In Turkey In Turkey –– Textiles, the panel held thatTextiles, the panel held that::

�� ““What para. 5(a) provides, in short, is that the effects of the What para. 5(a) provides, in short, is that the effects of the resulting trade measures and policies of the new regional resulting trade measures and policies of the new regional agreement shall not be more trade restrictive, overall, than agreement shall not be more trade restrictive, overall, than were the constituent countrieswere the constituent countries’’ previous trade policies and previous trade policies and that para. 5(a) provided for an that para. 5(a) provided for an ‘‘economiceconomic’’ test for assessing test for assessing compatibilitycompatibility””

�� The Appellate Body concurred by noting that The Appellate Body concurred by noting that ““according to according to para. 4, the purpose of a customs union is para. 4, the purpose of a customs union is ““to facilitate to facilitate tradetrade”” between the constituent members and between the constituent members and ““not to raise not to raise barriers to the tradebarriers to the trade”” with third countries. This objective with third countries. This objective demands that a balance be struck by the constituent demands that a balance be struck by the constituent members of a customs union. A customs union should members of a customs union. A customs union should facilitate trade within the customs union, but it should not to facilitate trade within the customs union, but it should not to do so in a way that raises barriers to trade with third do so in a way that raises barriers to trade with third countriescountries

3939


–– Interpretative problems with ArticleInterpretative problems with Article�� (i) the meaning of the phrase (i) the meaning of the phrase ““as between the territories of as between the territories of

contracting partiescontracting parties”” in the chapeau of the Article; in the chapeau of the Article;

�� (ii) the meaning of the phrase (ii) the meaning of the phrase ““duties and other regulations duties and other regulations of commerce imposed at the institution of any such of commerce imposed at the institution of any such union/maintained in each of the constituent territories; union/maintained in each of the constituent territories;

�� (iii) scope of the requirement relating to the obligation that (iii) scope of the requirement relating to the obligation that duties and other regulations...duties and other regulations...””shall not on the whole be shall not on the whole be higher or more restrictive than the general incidence of the higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the duties and regulations of commerce applicable in the constituent territories; and constituent territories; and

�� (iv) the meaning of the following phrases: (iv) the meaning of the following phrases: ““interim interim agreementagreement””, , ““reasonable period of timereasonable period of time”” and and ““plan and plan and scheduleschedule””..

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WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Meaning of the phrase Meaning of the phrase ““as between the as between the

territories of contracting partiesterritories of contracting parties”” in the in the chapeau of the Article;chapeau of the Article;

–– Whether applicable only to agreements entered into by Whether applicable only to agreements entered into by GATT contracting parties (WTO Members)? What GATT contracting parties (WTO Members)? What about agreements entered into by a Member or a nonabout agreements entered into by a Member or a non--Member?Member?

–– During the GATT years, agreements entered into During the GATT years, agreements entered into between a contracting party and a nonbetween a contracting party and a non--contracting contracting party were considered under Article XXIV:10, which party were considered under Article XXIV:10, which requires tworequires two--thirds majority approvalthirds majority approval

–– Systemic implications of differing standardsSystemic implications of differing standards

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WTO RulesWTO Rules


––Meaning of duties and other Meaning of duties and other

restrictive regulations of commercerestrictive regulations of commerce�� Very little controversy about the term Very little controversy about the term ““dutiesduties””. .

However, no consensus on the meaning However, no consensus on the meaning ““other regulations of commerce.other regulations of commerce.””

�� Should certain trade policy instruments such Should certain trade policy instruments such as quantitative restrictions, rules of origin, as quantitative restrictions, rules of origin, competition rules, SPS and TBT measures competition rules, SPS and TBT measures be considered as be considered as ORCsORCs??

�� What is the distinction between an ORC and What is the distinction between an ORC and

an ORRC?an ORRC?

4242


––Quantitative RestrictionsQuantitative Restrictions�� Could QRs be considered as Could QRs be considered as ““other regulations other regulations

of commerceof commerce””

�� In the examination of the Treaty of Rome, the In the examination of the Treaty of Rome, the EEC contested the view of some countries that EEC contested the view of some countries that QRs fell outside the scope of Article XXIV:5QRs fell outside the scope of Article XXIV:5

�� The text of Article XXIV:5 quite unhelpful, as it The text of Article XXIV:5 quite unhelpful, as it does not give any indication as to whether QRs does not give any indication as to whether QRs are outside the scope of the Article. The are outside the scope of the Article. The Understanding did not also clarify the issue.Understanding did not also clarify the issue.

4343


–– Quantitative RestrictionsQuantitative Restrictions�� Issue considered by the Panel in the Turkey case. Issue considered by the Panel in the Turkey case.

Turkey, which had introduced QRs upon the customs Turkey, which had introduced QRs upon the customs

union agreement with the EU, argued that there was union agreement with the EU, argued that there was

nothing in the terms of Article XXIV:5 which prohibited nothing in the terms of Article XXIV:5 which prohibited

parties to a RTA from introducing QRs: parties to a RTA from introducing QRs:

�� ““[t]he plain meaning of Articles XXIV:4 and 5 was clearly [t]he plain meaning of Articles XXIV:4 and 5 was clearly

that the provisions of the GATT did not prevent the that the provisions of the GATT did not prevent the

imposition of a regulation of commerce at the institution of imposition of a regulation of commerce at the institution of

a customs union, as long as this was not more restrictive a customs union, as long as this was not more restrictive

than the general incidence of the duties and regulations than the general incidence of the duties and regulations

applicable in the constituent territories prior to the applicable in the constituent territories prior to the

formation of the customs unionformation of the customs union…”…”. .

4444


–– Quantitative RestrictionsQuantitative Restrictions�� India challenged TurkeyIndia challenged Turkey’’s interpretation of Article XXIV:5. It s interpretation of Article XXIV:5. It

was of the view that parties to RTAs couldnwas of the view that parties to RTAs couldn’’t introduce t introduce measures which are prohibited under the GATT, otherwise it measures which are prohibited under the GATT, otherwise it would lead to an incongruous situation: would lead to an incongruous situation: ““The terms of Article The terms of Article XXIV.5 do not provide a legal basis for measures otherwise XXIV.5 do not provide a legal basis for measures otherwise incompatible with GATT/WTO rules. This provision merely incompatible with GATT/WTO rules. This provision merely authorizes the formation of a customs union or freeauthorizes the formation of a customs union or free--trade trade area, nothing else. Its terms consequently exempt from the area, nothing else. Its terms consequently exempt from the other obligations under the GATT only measures inherent in other obligations under the GATT only measures inherent in the formation of a customs union or a freethe formation of a customs union or a free--trade areatrade area……There There is, in particular, nothing that requires Members forming a is, in particular, nothing that requires Members forming a customs union to impose new restrictions on imports from customs union to impose new restrictions on imports from one particular third Member, inconsistently with Articles XI one particular third Member, inconsistently with Articles XI and XIII of GATT and Article 2.4 of the ATC.and XIII of GATT and Article 2.4 of the ATC.””

4545

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Quantitative RestrictionsQuantitative Restrictions

�� The Panel held that QRs are regulations of commerce The Panel held that QRs are regulations of commerce within the meaning of Article XXIV:5. As to the central within the meaning of Article XXIV:5. As to the central question of whether parties to a RTA are justified in question of whether parties to a RTA are justified in introducing QRs, the Panel stated:introducing QRs, the Panel stated:

–– ““we consider that the wording of Article XXIV does not we consider that the wording of Article XXIV does not authorize a departure from the obligations contained in authorize a departure from the obligations contained in Articles XI and XIII of the GATT and Article 2.4 of the Articles XI and XIII of the GATT and Article 2.4 of the ATCATC……[P]aragraphs 5 and 8 of Article XXIV provide [P]aragraphs 5 and 8 of Article XXIV provide parameters for the establishment and assessment of a parameters for the establishment and assessment of a customs unioncustoms union……These provisions do not, however, address These provisions do not, however, address any specific measures that may or may not be adopted on the any specific measures that may or may not be adopted on the formation of a customs union and importantly they do not formation of a customs union and importantly they do not authorise violations of Articles XI and XIII, and Article 2.4 ofauthorise violations of Articles XI and XIII, and Article 2.4 ofthe ATCthe ATC…”…”..

4646

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994 Article XXIV:5 of the GATT 1994 -- QRsQRs�� On appeal, the Appellate Body reversed the the Panel On appeal, the Appellate Body reversed the the Panel

on this point:on this point:

–– ““[W]e are of the view that Article XXIV may justify a [W]e are of the view that Article XXIV may justify a measure which is inconsistent with certain other GATT measure which is inconsistent with certain other GATT provisions. However, in a case involving the formation provisions. However, in a case involving the formation of a customs union, this "defence" is available only of a customs union, this "defence" is available only when two conditions are fulfilled. when two conditions are fulfilled. FirstFirst, the party , the party claiming the benefit of this defence must claiming the benefit of this defence must demonstrate that the measure at issue is introduced demonstrate that the measure at issue is introduced upon the formation of the customs union that fully upon the formation of the customs union that fully meets the requirements of submeets the requirements of sub--paragraph 8(a) and paragraph 8(a) and 5(a) of Article XXIV. 5(a) of Article XXIV. And, secondAnd, second, that party must , that party must demonstrate that the formation of the customs demonstrate that the formation of the customs union would be prevented if it were not allowed to union would be prevented if it were not allowed to introduce the measure at issueintroduce the measure at issue

4747


–– Quantitative RestrictionsQuantitative Restrictions�� The Appellate Body observed the Panel did not address the The Appellate Body observed the Panel did not address the

question whether the RTA between Turkey and the EC was question whether the RTA between Turkey and the EC was in fact a CU which met the requirements of paras 5(a) and in fact a CU which met the requirements of paras 5(a) and 8(a) of Article XXIV.8(a) of Article XXIV.

�� Panel seemed to be of the view that it did not have the Panel seemed to be of the view that it did not have the jurisdiction to assess the overall compatibility of a CU with jurisdiction to assess the overall compatibility of a CU with the requirements of Art. XXIV. Also declined on grounds of the requirements of Art. XXIV. Also declined on grounds of judicial economy. Panel assumed that the CU complied judicial economy. Panel assumed that the CU complied with Article XXIVwith Article XXIV

�� Focussed its analysis on whether Turkey was permitted to Focussed its analysis on whether Turkey was permitted to introduce the QRs at issueintroduce the QRs at issue

�� Issue not appealed but the AB hinted that Panels and the Issue not appealed but the AB hinted that Panels and the Appellate Body could review the overall compatibility of Appellate Body could review the overall compatibility of RTAs with the requirements of Article XXIV RTAs with the requirements of Article XXIV –– referred to its referred to its decision in India decision in India –– BOP caseBOP case

4848

WTO RulesWTO Rules�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994�� Rules of Origin: FTAs usually adopt stringent ROO to Rules of Origin: FTAs usually adopt stringent ROO to

prevent products originating in third countries from entering prevent products originating in third countries from entering their markets dutytheir markets duty--free or at concessionary rates.free or at concessionary rates.

–– Parties to FTAs usually rely on the following:Parties to FTAs usually rely on the following:

�� The product must be wholly obtained in the territory of the partThe product must be wholly obtained in the territory of the partiesies

�� Substantial transformation process Substantial transformation process -- imported product undergoes imported product undergoes

further processing resulting in a change of tariff classificatiofurther processing resulting in a change of tariff classificationn

�� NonNon--regional inputs to account for no more than a specified regional inputs to account for no more than a specified

maximum percentage of production cost or transaction valuemaximum percentage of production cost or transaction value

�� Specific processes to be undertaken within FTA or some other Specific processes to be undertaken within FTA or some other

productproduct--specific technological requirement be satisfiedspecific technological requirement be satisfied

�� See Factual Presentation by the WTO Secretariat of the See Factual Presentation by the WTO Secretariat of the

Closer Economic Partnership Agreement between Thailand Closer Economic Partnership Agreement between Thailand

and New Zealand (WT/REG207/3); 3 January 2007, pp10and New Zealand (WT/REG207/3); 3 January 2007, pp10--1212

4949


–– Rules of Origin: Depending on the preference and the threshold Rules of Origin: Depending on the preference and the threshold

figures or requirements set by the parties to the FTA, ROOs coulfigures or requirements set by the parties to the FTA, ROOs could d

have the potential of raising or increasing barriers to externalhave the potential of raising or increasing barriers to external trade.trade.

–– In its proposal to the Negotiating Group on Rules (TN/RL/W116), In its proposal to the Negotiating Group on Rules (TN/RL/W116),

Korea noted that parties to RTAs regularly establish PROO that aKorea noted that parties to RTAs regularly establish PROO that are re

more stringent than those applied on an MFN basis. Consequently,more stringent than those applied on an MFN basis. Consequently,

producers obliged to change their source of supply from thirdproducers obliged to change their source of supply from third-- party party

country suppliers to constituent party suppliers in order to reccountry suppliers to constituent party suppliers in order to receive eive

preferential treatment under the RTApreferential treatment under the RTA

–– Korea poses the question whether PROO should be considered to bKorea poses the question whether PROO should be considered to be e

an ORC or an ORRC. It expresses doubts about the WTOan ORC or an ORRC. It expresses doubts about the WTO--

consistency of diagonal cumulation schemes with tend to favour consistency of diagonal cumulation schemes with tend to favour

parties to regional trade agreements. parties to regional trade agreements.

–– In its proposal (TNW/179), the EC stated that it was open to claIn its proposal (TNW/179), the EC stated that it was open to clarifying rifying

and expanding the scope of and expanding the scope of ORCsORCs to include PROO provided there to include PROO provided there

would not be perverse outcomes regarding the neutrality testwould not be perverse outcomes regarding the neutrality test

–– WTO Work Programme on nonWTO Work Programme on non--preferential Rules of Originpreferential Rules of Origin

5050

WTO Rules WTO Rules �� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994�� TBT and SPS MeasuresTBT and SPS Measures: : Are they to be considered as Are they to be considered as

ORCsORCs or or ORRCsORRCs ??

�� In its proposal, Korea notes that some RTAs provide In its proposal, Korea notes that some RTAs provide

preferential standard criteria or procedures for products preferential standard criteria or procedures for products

originating from partner countries but not from third partiesoriginating from partner countries but not from third parties

�� It also gives the example of the establishment of a conformity It also gives the example of the establishment of a conformity

assessment standard on a regional basis. While products assessment standard on a regional basis. While products from both the region and third parties may comply with the from both the region and third parties may comply with the

standard, there are certain advantages for regional productsstandard, there are certain advantages for regional products

�� Harmonization of technical regulations; compatibility of Harmonization of technical regulations; compatibility of

conformity assessment procedures; equivalence etcconformity assessment procedures; equivalence etc

�� See Factual Presentation by the WTO Secretariat of the See Factual Presentation by the WTO Secretariat of the

Closer Economic Partnership Agreement between Thailand Closer Economic Partnership Agreement between Thailand

and New Zealand (WT/REG207/3); 3 January 2007, pp12and New Zealand (WT/REG207/3); 3 January 2007, pp12--1414

5151


–– Duties and Other Regulations of Commerce Duties and Other Regulations of Commerce ““shall not on the shall not on the whole be higher or more restrictive than the general incidence whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the of the duties and regulations of commerce applicable in the constituent territoriesconstituent territories””

–– In the case of CUs, para (a) provides that the duties and ORCs In the case of CUs, para (a) provides that the duties and ORCs imposed by a CU are to be compared to those imposed by a CU are to be compared to those applicableapplicable by by its parties prior to the institution of the union its parties prior to the institution of the union -- The rates of duty The rates of duty to be compared are the applied rates of duty (Understanding to be compared are the applied rates of duty (Understanding on the Interpretation of Article XXIV)on the Interpretation of Article XXIV)

–– In the case of FTAs, para (b) provides that the corresponding In the case of FTAs, para (b) provides that the corresponding comparison for FTAs should be based on the duties and ORCs comparison for FTAs should be based on the duties and ORCs maintainedmaintained in each of the constituent territories and applicable in each of the constituent territories and applicable at the formation of the FTA and those previously existing in theat the formation of the FTA and those previously existing in thesame constituent territories same constituent territories

–– Understanding silent on FTAS Understanding silent on FTAS –– applied or bound ?applied or bound ?

5252


–– A threshold issue is how to calculate the general incidence A threshold issue is how to calculate the general incidence

of duties and other regulations of commerce and make the of duties and other regulations of commerce and make the

determination whether or not they have determination whether or not they have ““on the whole on the whole

become higher or more restrictivebecome higher or more restrictive””??

–– Does the Article require an aggregated or disaggregated Does the Article require an aggregated or disaggregated

analyses to be undertaken?analyses to be undertaken?

–– View has been expressed that separate analyses have to View has been expressed that separate analyses have to

be undertaken for tariffs and regulations of commerce. No be undertaken for tariffs and regulations of commerce. No

consensus on this issueconsensus on this issue

–– Another separate issue is whether when considering only Another separate issue is whether when considering only

tariffs or other regulations of commerce, an aggregated tariffs or other regulations of commerce, an aggregated

analyses or disaggregated analyses should be used in analyses or disaggregated analyses should be used in

calculating the restrictiveness or otherwise of tariffs or calculating the restrictiveness or otherwise of tariffs or

other regulations of commerce?other regulations of commerce?

5353

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Professor Kenneth Dam notes that:Professor Kenneth Dam notes that:

�� ““A principal decision to be made is whether the words A principal decision to be made is whether the words ““on on the wholethe whole”” and and ““general incidencegeneral incidence”” refer to each item in the refer to each item in the common external tariff schedule or the common external common external tariff schedule or the common external tariff schedule as a whole. If the latter alternative is tariff schedule as a whole. If the latter alternative is chosen, one must still determine whether the initial step is chosen, one must still determine whether the initial step is to calculate the height and restrictiveness of each national to calculate the height and restrictiveness of each national tariff schedule and then strike some kind of average tariff schedule and then strike some kind of average between these national levels...Or is one first to strike between these national levels...Or is one first to strike some unionsome union--wide average for each tariff classification and wide average for each tariff classification and then to determine the aggregate height of a common then to determine the aggregate height of a common external tariff composed of these unionexternal tariff composed of these union--wide averages, the wide averages, the customs union being free to assign any duties on individual customs union being free to assign any duties on individual items in the common external tariff as long as the items in the common external tariff as long as the calculated union index is not exceeded?calculated union index is not exceeded?””

5454

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Negotiating history seem to support the view that an Negotiating history seem to support the view that an

aggregated analysis has to be undertaken to determine aggregated analysis has to be undertaken to determine the restrictiveness of duties and other regulations of the restrictiveness of duties and other regulations of commercecommerce

–– As regards tariffs, the Understanding on the As regards tariffs, the Understanding on the Interpretation of Article XXIV attempts to clarify the issue Interpretation of Article XXIV attempts to clarify the issue by providing that by providing that ““the assessment shall be based upon the assessment shall be based upon an overall assessment of weighted average tariff rates an overall assessment of weighted average tariff rates and of customs duties collected.and of customs duties collected.””

–– It further provides that It further provides that ““this assessment shall be based this assessment shall be based on import statistics for a previous representative period on import statistics for a previous representative period to be supplied by the customs union, on a tariffto be supplied by the customs union, on a tariff--line basis line basis and in values and quantities, broken down by country of and in values and quantities, broken down by country of origin.origin.””

5555

Calculations under Article Calculations under Article

XXIV:5 of the GATT 1994XXIV:5 of the GATT 1994

MERCOSURMERCOSUR

5656

Para. 2 of the UnderstandingPara. 2 of the Understanding

�� Assessment to be based upon an overall Assessment to be based upon an overall

assessment of assessment of weighted average tariff weighted average tariff

ratesrates and of and of customs duties collectedcustoms duties collected

� Assessment to be based on import statistics for a previous representative period to be supplied by the customs union, on a tariff line basis and in values and quantities, broken down by country of origin

5757

Para. 2 of the UnderstandingPara. 2 of the Understanding

�� In the case of MERCOSUR, the Secretariat In the case of MERCOSUR, the Secretariat

calculated the importcalculated the import--weighted average tariff weighted average tariff rates prerates pre--customs union (1994) and post customs union (1994) and post

customs union (1995 and 2006)customs union (1995 and 2006)

�� The Secretariat also calculated the The Secretariat also calculated the

corresponding estimated values of customs corresponding estimated values of customs

duties collected.duties collected.

5858

Data and MethodologyData and Methodology� Tariff rates, by tariff lines for the 4 parties –

Argentina, Brazil, Paraguay and Uruguay

–– PrePre--customs union situation: applied rates at 1 customs union situation: applied rates at 1 January 1994January 1994

–– PostPost--customs union situation: applied rates at 1 customs union situation: applied rates at 1 January 1995 and CET rates agreed in 1999 for January 1995 and CET rates agreed in 1999 for completion of the customs union in 2006completion of the customs union in 2006

�� The Secretariat also calculated the The Secretariat also calculated the

corresponding estimated values of customs corresponding estimated values of customs

duties collected.duties collected.

�� Average of imports, in value and quantity and Average of imports, in value and quantity and by tariff line, into each of the four parties, by tariff line, into each of the four parties, from WTO partners for the 1992from WTO partners for the 1992--1994 period1994 period

5959

Average tariff rates & Customs Average tariff rates & Customs Duties CollectedDuties Collected

� Pre-customs union situation: average of Argentina, Brazil, Paraguay and Uruguay's applied tariff rates in 1994, weighted by aggregated 1992-94 import values of the four parties..

�� PostPost--customs union situation:customs union situation: average of average of Argentina, Brazil, Paraguay and Uruguay's applied Argentina, Brazil, Paraguay and Uruguay's applied tariff rates in 1995, weighted by aggregated 1992tariff rates in 1995, weighted by aggregated 1992--94 import values of the four parties.94 import values of the four parties.

�� PostPost--customs union situation:customs union situation: average of average of Argentina, Brazil, Paraguay and Uruguay's applied Argentina, Brazil, Paraguay and Uruguay's applied tariff rates in 2006, weighted by aggregated 1992tariff rates in 2006, weighted by aggregated 1992--94 import values of the four94 import values of the four

�� Customs duties collectedCustoms duties collected: estimates derived from : estimates derived from the average tariff rates obtained under (a) and the average tariff rates obtained under (a) and annual average import values in 1992annual average import values in 1992--94. 94.

6060

Results of calculationsResults of calculations

17819514617311613.615.011.213.28.91,305Uruguay

14214299998215.315.310.710.78.8929Paraguay

2,0252,1082,8632,9673,3108.89.212.513.014.522,900Brazil

1,60016001,4371,4371,26012.412.411.211.29.812,886Argentina

Avg.Max.Avg.Max.Avg.Max.Avg.Max.

CET (2006)Post CU (1995)Pre-CU

CET 2006Post-CU (1995)Pre-CU

Average customs duties collected in 1992-1994***

Nationalweighted average

tariff rates**

Average imports

1992-94*($ m )

6161

Overall results of calculationsOverall results of calculations

3,9453,9454,5454,5454,7684,768Average Average custom custom duties duties collected in collected in

US$US$

10.4%10.4%12%12%12.5%12.5%Weighted Weighted average tariff average tariff ratesrates

CET 2006CET 20061995 applied 1995 applied tariff ratestariff rates

PrePre--Customs Customs UnionUnion

6262

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– As regards ORCs, para. 2 of the Understanding on the As regards ORCs, para. 2 of the Understanding on the

Interpretation of Article XXIV recognises that the Interpretation of Article XXIV recognises that the quantification and aggregation of regulations of quantification and aggregation of regulations of commerce other than duties may be difficult, and commerce other than duties may be difficult, and therefore, states that therefore, states that ““for the purpose of the overall for the purpose of the overall assessment of the incidence of ORCs for which assessment of the incidence of ORCs for which quantification and aggregation are difficult, the quantification and aggregation are difficult, the examination of individual measures, regulations, examination of individual measures, regulations, products covered and trade flows affected may be products covered and trade flows affected may be requiredrequired””

6363

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– A threshold issue is how can the rights of third A threshold issue is how can the rights of third

countries be effectively protectedcountries be effectively protected

–– Optimal result would be to require parties to Optimal result would be to require parties to RTAs to extend the same preferences to third RTAs to extend the same preferences to third countries within a specific period of timecountries within a specific period of time

–– Politically difficult Politically difficult -- Free ridingFree riding

–– Requiring parties to RTAS to adopt the lowest Requiring parties to RTAS to adopt the lowest MFN tariff applicable to each product prior to the MFN tariff applicable to each product prior to the formation of the customs union / and also the formation of the customs union / and also the

least restrictive ORCleast restrictive ORC

6464

WTO Rules WTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Meaning of Meaning of ““applicable in the constituent applicable in the constituent

territoriesterritories”” -- Does it refer to applied rates of duty or Does it refer to applied rates of duty or bound rates of duty?bound rates of duty?

–– In GATT/WTO negotiations, it is the bound rate which In GATT/WTO negotiations, it is the bound rate which is taken into account in trade negotiations. However, is taken into account in trade negotiations. However, proposal in the NAMA negotiations that the base proposal in the NAMA negotiations that the base rates should be the applied rates of duty. Later rates should be the applied rates of duty. Later resolved resolved –– bound rates to be taken into account bound rates to be taken into account

–– In the context of In the context of CUsCUs, the Understanding on the , the Understanding on the Interpretation of Article XXIV clarified that it is the Interpretation of Article XXIV clarified that it is the applied rates which have to be taken into account in applied rates which have to be taken into account in determining the general incidence of dutiesdetermining the general incidence of duties

–– Not clear in the context of FTAsNot clear in the context of FTAs

6565


–– Meaning of Meaning of ““interim agreementinterim agreement””: An agreement : An agreement

establishing a CU or FTA which does not establishing a CU or FTA which does not immediately commit the parties to abolishing immediately commit the parties to abolishing barriers to substantially all the trade between barriers to substantially all the trade between them. In practice, very few agreements commit them. In practice, very few agreements commit the parties to abolishing barriers to their trade the parties to abolishing barriers to their trade immediately.immediately.

–– Some Members have presented their agreements Some Members have presented their agreements as fullyas fully--fledged FTAs or agreements establishing fledged FTAs or agreements establishing a CU, whereas, in fact, they could be properly a CU, whereas, in fact, they could be properly

regarded as interim agreements leading to the regarded as interim agreements leading to the formation of either a CU or FTA.formation of either a CU or FTA.

6666

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– What should a plan and schedule contain?What should a plan and schedule contain?

–– Requirement that interim agreements must be Requirement that interim agreements must be submitted with a plan and schedule is meant to submitted with a plan and schedule is meant to ensure that parties do not circumvent their ensure that parties do not circumvent their obligations under Article XXIV by maintaining obligations under Article XXIV by maintaining indefinitely a RTA which does not comply with indefinitely a RTA which does not comply with the terms of Article XXIV.the terms of Article XXIV.

–– While the plan and schedule must not While the plan and schedule must not necessarily be comprehensive, they must be necessarily be comprehensive, they must be such as to permit an initial factual appraisal of such as to permit an initial factual appraisal of the agreementthe agreement

6767

WTO RulesWTO Rules

�� Article XXIV:5 of the GATT 1994Article XXIV:5 of the GATT 1994–– Meaning of Meaning of ““within a reasonable period within a reasonable period

of timeof time””

–– In the past, there was a lot of controversy as In the past, there was a lot of controversy as

to the meaning of this requirement. The to the meaning of this requirement. The

transitional period of some agreements transitional period of some agreements

exceeded 20 years, sometimes over 30 exceeded 20 years, sometimes over 30

yearsyears

–– The Understanding on the Interpretation of The Understanding on the Interpretation of

Article XXIV provides that it should Article XXIV provides that it should notnot

normally exceed 10 years.normally exceed 10 years.

6868

WTO Rules WTO Rules

�� Article XXIV:6 of the GATT 1994Article XXIV:6 of the GATT 1994–– Rationale for subsection seems to be that Rationale for subsection seems to be that

nonnon--members of a RTA should not be made members of a RTA should not be made

to lose their trade benefits within the MTS, to lose their trade benefits within the MTS,

owing to the decision of a group of owing to the decision of a group of

countries to further liberalise trade among countries to further liberalise trade among

themselves.themselves.

–– Where a CU increases the tariff on a bound Where a CU increases the tariff on a bound item, it is expected to enter negotiations with item, it is expected to enter negotiations with parties having initial negotiating rights, principal parties having initial negotiating rights, principal supplying interest and substantial trade interest supplying interest and substantial trade interest in the affected in the affected product(sproduct(s).).

6969

WTO RulesWTO Rules

�� Article XXIV:6 of the GATT 1994Article XXIV:6 of the GATT 1994–– Three main interpretative difficulties have been Three main interpretative difficulties have been

experienced:experienced:

–– FirstFirst, how to deal with an increase in a bound , how to deal with an increase in a bound rate of duty in some constituent members of rate of duty in some constituent members of the CU, when other members have reduced the CU, when other members have reduced the duty for that specific itemthe duty for that specific item

–– The Understanding on the Interpretation of The Understanding on the Interpretation of Article XXIV provides Article XXIV provides ““due account shall be due account shall be

taken of reductions of duties on the same tariff taken of reductions of duties on the same tariff line made by other members of the customs line made by other members of the customs unionunion””

7070

WTO Rules WTO Rules

�� Article XXIV:6 of the GATT 1994Article XXIV:6 of the GATT 1994–– SecondSecond, is reverse compensatory adjustment recognised , is reverse compensatory adjustment recognised

under WTO rules? The EC made the argument that it under WTO rules? The EC made the argument that it was entitled to receive compensation from the contracting was entitled to receive compensation from the contracting parties of the GATT as the acceding countries had to parties of the GATT as the acceding countries had to lower their import tariffs on a broad range of industrial lower their import tariffs on a broad range of industrial goods. The reductions in this sector more than offset any goods. The reductions in this sector more than offset any increases in tariffs on agricultural products.increases in tariffs on agricultural products.

–– The Understanding on the Interpretation of Article XXIV The Understanding on the Interpretation of Article XXIV provides provides ““GATT 1994 imposes no obligation on Members GATT 1994 imposes no obligation on Members benefiting from a reduction of duties consequent upon the benefiting from a reduction of duties consequent upon the formation of a customs union, or an interim agreement formation of a customs union, or an interim agreement leading to the formation of a customs union, to provide leading to the formation of a customs union, to provide compensatory adjustment to its constituents.compensatory adjustment to its constituents.””

7171

WTO Rules WTO Rules


–– ThirdThird, when should compensatory negotiations , when should compensatory negotiations under the procedures outlined in Article XXVIII under the procedures outlined in Article XXVIII of the GATT 1994 take place?of the GATT 1994 take place?

–– In a number of cases, the parties unilaterally In a number of cases, the parties unilaterally modified their concessions contrary to the modified their concessions contrary to the

provisions of Article II of the GATT 1994 before provisions of Article II of the GATT 1994 before commencing compensatory negotiationscommencing compensatory negotiations

–– In the examination of the CU between the EC In the examination of the CU between the EC and Turkey, Thailand criticised the parties for and Turkey, Thailand criticised the parties for not following established proceduresnot following established procedures

7272

WTO RulesWTO Rules


–– The Understanding on the Interpretation of Article The Understanding on the Interpretation of Article

XXIV resolves this issue by making it clear that XXIV resolves this issue by making it clear that

compensatory negotiations should be commenced compensatory negotiations should be commenced

before the parties modify or withdraw their tariff before the parties modify or withdraw their tariff

concessions under Article II of the GATT 1994concessions under Article II of the GATT 1994

–– It would appear that there is no obligation on the It would appear that there is no obligation on the

parties to conclude the negotiations before parties to conclude the negotiations before

withdrawing or modifying their concessionswithdrawing or modifying their concessions

–– ONEONE issue yet to be clarified is how to deal with issue yet to be clarified is how to deal with

nonnon--tariff barriers tariff barriers -- Panel in Panel in Turkey Turkey -- TextilesTextiles..

7373

WTO RulesWTO Rules

�� Article XXIV:7 of the GATT 1994Article XXIV:7 of the GATT 1994–– Has been observed that it is one of the most abused Has been observed that it is one of the most abused

provisions in the GATT. Its provisions are routinely provisions in the GATT. Its provisions are routinely ignored by GATT/WTO Membersignored by GATT/WTO Members

–– WTO Members obligated to promptly notify their WTO Members obligated to promptly notify their agreements to the WTO and attach any relevant agreements to the WTO and attach any relevant information which would enable the GC to make any information which would enable the GC to make any recommendations it deems appropriaterecommendations it deems appropriate

–– Objective is to give residual control to the GC over such Objective is to give residual control to the GC over such agreements to ensure that they complemented the agreements to ensure that they complemented the MTS.MTS.

–– Drafting history confirms that there were some Drafting history confirms that there were some concerns about RTAs. By investing that power in the concerns about RTAs. By investing that power in the GC, it was thought that an effective mechanism had GC, it was thought that an effective mechanism had been found which would ensure the complementarity been found which would ensure the complementarity between the two approaches to tradebetween the two approaches to trade

7474

WTO RulesWTO Rules


–– Two main difficulties have been experienced Two main difficulties have been experienced

with this provision: (i) when should notifications with this provision: (i) when should notifications

be made; and (ii) the extent of the powers of the be made; and (ii) the extent of the powers of the

GC to make binding recommendationsGC to make binding recommendations

–– A cursory reading of the Article would seem to A cursory reading of the Article would seem to

suggest that Members have to notify their suggest that Members have to notify their

agreements before implementing them. In agreements before implementing them. In

practice, however, most agreements are practice, however, most agreements are

implemented before they are notified to the implemented before they are notified to the

WTO.WTO.

7575


–– Concern led to the adoption of a Decision in Concern led to the adoption of a Decision in October 1972:October 1972:�� Without prejudice to the legal obligations to notify Without prejudice to the legal obligations to notify

in pursuance of Article XXIV, the Council decides in pursuance of Article XXIV, the Council decides to invite [Members] that sign an agreement falling to invite [Members] that sign an agreement falling within the terms of Article XXIV, paragraphs 5 to within the terms of Article XXIV, paragraphs 5 to 8, to inscribe the item on the agenda for the first 8, to inscribe the item on the agenda for the first meeting of the Council following such signature, to meeting of the Council following such signature, to the extent that the advance notice of ten days the extent that the advance notice of ten days prescribed for inclusion of items on the agenda prescribed for inclusion of items on the agenda can be observed. Inclusion of the item should can be observed. Inclusion of the item should allow the Council to determine the procedures for allow the Council to determine the procedures for the examination of the agreement"the examination of the agreement"

7676

WTO RulesWTO Rules

�� Article XXIV:7 of the GATT 1994Article XXIV:7 of the GATT 1994–– Adoption of this decision did not change the Adoption of this decision did not change the

practice. In the examination of the CU between practice. In the examination of the CU between the EU and Turkey, Hong Kong noted that while the EU and Turkey, Hong Kong noted that while the agreement went into force on 31 December the agreement went into force on 31 December 1995, it was not until mid1995, it was not until mid--February of the February of the following year that the agreement was notified to following year that the agreement was notified to the WTO.the WTO.

–– Although the delay was only 2 months, HK was Although the delay was only 2 months, HK was interested in making a systemic point. In interested in making a systemic point. In response, the EU pointed out that response, the EU pointed out that ““it might be it might be impracticable for parties to a RTA to notify their impracticable for parties to a RTA to notify their agreement before its implementation.agreement before its implementation.””

7777


–– Why is there a flagrant disregard of the provisions of Why is there a flagrant disregard of the provisions of

Article XXIV:7?Article XXIV:7?

–– FirstFirst, knowledge that the examination process is too slow , knowledge that the examination process is too slow and would not yield conclusive results at the end. and would not yield conclusive results at the end.

MERCOSUR was notified in 1993, but no decision as of MERCOSUR was notified in 1993, but no decision as of

January 2008. Economic gains would be lost if Members January 2008. Economic gains would be lost if Members

were to wait for the decision of the WTO before were to wait for the decision of the WTO before

implementationimplementation

–– SecondSecond, WTO, WTO--mandated changes before the mandated changes before the

implementation of a RTA could create difficulties for implementation of a RTA could create difficulties for

governments governments -- Issue of sovereignty. Related to this point Issue of sovereignty. Related to this point

is that it may be impractical to notify agreements is that it may be impractical to notify agreements immediately after signature, as the agreement may be immediately after signature, as the agreement may be

changed in the course of the legislative process. changed in the course of the legislative process.

7878

WTO Rules WTO Rules


–– What kind of recommendations could be made by the What kind of recommendations could be made by the GC?GC?

–– XXIV does not throw any useful light on this issue, but it XXIV does not throw any useful light on this issue, but it could be argued that these should include:could be argued that these should include:�� requiring the parties to phase out their restrictions on each requiring the parties to phase out their restrictions on each

otherother’’s trade within a shorter period;s trade within a shorter period;

�� broaden the coverage of their agreement to include sectors or broaden the coverage of their agreement to include sectors or subsub--sectors which had been excluded from the coverage of sectors which had been excluded from the coverage of the agreementthe agreement

�� the reduction of the general incidence of duties and other the reduction of the general incidence of duties and other regulations of commerce regulations of commerce

–– A close reading of the provisions of the Article would A close reading of the provisions of the Article would seem to suggest that the drafters wanted the GC to make seem to suggest that the drafters wanted the GC to make these recommendations to the parties before the these recommendations to the parties before the implementation of their agreementsimplementation of their agreements

7979

New New WTO Transparency MechanismWTO Transparency Mechanism

•• simplifies, clarifies and improves the existing RTA simplifies, clarifies and improves the existing RTA

transparency provisionstransparency provisions

•• aims at ensuring coherence of the transparency aims at ensuring coherence of the transparency

provisions applying to all RTAs*provisions applying to all RTAs*

•• alleviates Memberalleviates Member’’s burden of compliance with s burden of compliance with RTARTA’’ss

transparency obligations by entrusting some of its transparency obligations by entrusting some of its

elements to the WTO Secretariatelements to the WTO Secretariat

•• aims at ensuring a more homogeneous and systematic aims at ensuring a more homogeneous and systematic

provision of information of RTAsprovision of information of RTAs

•• strives to unblock the current impasse in the CRTAstrives to unblock the current impasse in the CRTA

After tortuous negotiations, agreement reached on text on 14 December 2006 (WT/L/671 and 672; 18 December 2006)

*(GATT Art. XXIV, GATS Art. V, Enabling Clause RTAs)

The Mechanism:

8080

1. Early announcement of RTAs

The new “RTAs’ Transparency Process” provides for:

2. Formal notification

3. Factual presentationby the Secretariat and supply of information by the parties

5. Information/reportingon changes andimplementation


4. Review by WTOMembers

8181

Some detail on the main elements:

1. Early announcement of RTAs

A system to keep track of RTAs

dynamics


• Provision of information of RTAs under negotiation and signed – name, scope & date of signature, timetable for entry into force of the agreement, etc

• Such information would be posted on the WTO website and be periodically updated by the Secretariat

8282

When should this take place?


• Notification of the RTA as early as possible – after ratification, application of the agreement by a party; and

• Before the application of preferential treatment• Provision of information on the RTA (e.g. text of the

agreement, annexes and protocols). Specify under which provision notification is being made

• Where available this preliminary information is to be submitted in an electronically exploitable form

2. Formal notification

8383


• Supply of specific RTA data by the parties • Preparation of a “Factual Presentation” of the RTA by the

Secretariat, on its own responsibility but in consultation with the parties

• Factual Presentation by the Secretariat to be based on information and data provided by the parties. Other sources of information could be used by the Secretariat but opportunity to be given to the parties to comment on accuracy


A more coherent and systematic

summary information on

RTAs

8484


• The “Factual Presentation” is to assist Members in their consideration of the RTA

• It may not contain value judgment and may not be used as a basis for dispute settlement procedures


A more coherent and systematic

summary information on

RTAs

8585


• Consideration of the RTA by Members on the basis of information and data presented by the parties and factual presentation by the Secretariat

• Data submission by parties to the WTO– for developed and developing countries 10 weeks / 20 weeks after date of notification of agreement, respectively

• Timetable for the consideration of the RTA to be drawn up by theSecretariat in consultation with the parties – timeframe: review to be completed within one year of notification of agreement


To gain knowledge and exercise “peer

pressure” on compliance matters

8686


• The aim of the review is to seek information on general and specific features of the RTA

• One formal meeting to be devoted to the consideration of each RTA which may be followed by written questions and replies

• Transparency –circulation of all relevant documents to Members, posted on the WTO website


To gain knowledge and exercise “peer

pressure” on compliance matters

8787


• Notification of changes affecting the implementation of an RTA or the operation of an already implemented RTA

• Notification to take place as soon as possible after the changesoccur

• Changes to be notified include modifications to the preferentialtreatment between the parties and to the RTA’s disciplines


Monitor the evolution and

implementation of RTAs

8888


• Parties to submit a short written report to the WTO after the end of the implementation period

• Opportunity to be provided for an exchange of views by Members

• Transparency - Information to be promptly circulated by the Secretariat to Members and posted on the WTO website


Monitor the evolution and

implementation of RTAs

8989

New New WTO Transparency MechanismWTO Transparency Mechanism–– Bodies Bodies

entrusted with implementationentrusted with implementation

• The CRTA – to exercise oversight of agreements notified pursuant to Article XXIV of the GATT 1994 and Article V of the GATS

• The CTD in dedicated session to exercise oversight of agreements notified pursuant to the Enabling Clause

9090

New New WTO Transparency Mechanism WTO Transparency Mechanism –– Other Other

Relevant provisionsRelevant provisions

• WTO Secretariat to provide technical support to developing-country members, particularly LDCs

• Cross notification – where parties have notified relevant information to either the CRTA or CTD

• WTO Secretariat to maintain an updated electronic database on individual RTAs –database to include relevant tariff and trade-related information

• Database to be user friendly (accessible to the public)

9191

New New WTO Transparency Mechanism WTO Transparency Mechanism ––Provisional ApplicationProvisional Application

• Decision to apply on a provisional basis to all RTAs notified under relevant WTO provisions

• Decision to apply to RTAs for which a Working Party Report had been adopted by the GATT Council and RTAs notified under the Enabling Clause to the CTD prior to 1995

• Decision to apply to RTAs in respect of which the CRTA had already concluded factual examination and those for which the factual examination would be concluded by 31 December 2006

• Decision also to apply agreements notified to the CTD since the entry into force of the WTO

9292

New New WTO Transparency Mechanism WTO Transparency Mechanism ––Provisional ApplicationProvisional Application

• For agreements notified since the entry into force of the WTO Agreement, the WTO Secretariat shall prepare a factual abstract presenting the essential features of the agreement

• Note that these agreements would only be subject to Sections D to G of the Decision. In other words, there will not be a de novo examination of the agreement –examination in respect of subsequent developments –Sect D entitled “subsequent notification and reporting”

• Other agreements not covered to be subject to Sections C to G.

9393

New New WTO Transparency Mechanism WTO Transparency Mechanism ––Reappraisal of the MechanismReappraisal of the Mechanism

• Decision to be reviewed in light of experience gained from its provisional operation and replaced with a permanent mechanism as part of the overall results of the Doha Round.

• Members also to review the legal relationship between this Mechanism and relevant WTO provisions related to RTAs

9494


–– Purpose of requirement is said to be a Purpose of requirement is said to be a ““public choice onepublic choice one””: :

an attempt to ensure that participants in regional an attempt to ensure that participants in regional

liberalisation efforts go all the way liberalisation efforts go all the way

–– Designed to constrain the ability of participating countries to Designed to constrain the ability of participating countries to violate their MFN obligations selectively.violate their MFN obligations selectively.

–– Customs unions and FTAs thought to be welfareCustoms unions and FTAs thought to be welfare--enhancing, enhancing, while liberalisation in a few sectors thought to reduce global while liberalisation in a few sectors thought to reduce global welfare.welfare.

–– Concept of Trade Creation and Trade Diversion: Introduced Concept of Trade Creation and Trade Diversion: Introduced

by Jacob Viner in his seminal work on customs unionsby Jacob Viner in his seminal work on customs unions

–– Trade creation was likely to occur if parties to RTAs Trade creation was likely to occur if parties to RTAs substantially liberalised their economies. Abolition of tariffssubstantially liberalised their economies. Abolition of tariffs and and other barriers to intraother barriers to intra--trade would provide opportunities for the trade would provide opportunities for the most efficient producer thereby enhancing consumer welfare most efficient producer thereby enhancing consumer welfare and promoting efficiency gains.and promoting efficiency gains.

9595


�� Partial liberalisation was likely to cause trade Partial liberalisation was likely to cause trade diversion, as members of the CU or FTA will simply diversion, as members of the CU or FTA will simply

be substituting highbe substituting high--cost producers in their cost producers in their territories with slightly better ones from other territories with slightly better ones from other participating countries.participating countries.

�� Key question is how much liberalisation should Key question is how much liberalisation should

occur before the constituent territories could be occur before the constituent territories could be

considered to have satisfied the test in Article considered to have satisfied the test in Article

XXIV:8 of the GATT 1994. XXIV:8 of the GATT 1994.

�� As noted by Australia:As noted by Australia:

““an agreed understanding of the meaning of an agreed understanding of the meaning of ““substantially all substantially all

the tradethe trade”” has so far eluded the [GATT/WTO] membershiphas so far eluded the [GATT/WTO] membership””..

9696


�� As noted by As noted by KoteraKotera Akira, Article XXIV:8 Akira, Article XXIV:8

�� ““does not imply that all duties must be eliminated, but does not imply that all duties must be eliminated, but

rather "substantially all." But what does substantially all rather "substantially all." But what does substantially all

mean, for instance, in terms of percentage of total trade mean, for instance, in terms of percentage of total trade

volume? Does each party to an EPA need to eliminate volume? Does each party to an EPA need to eliminate

duties on 90% of its import volume? Or is it enough to duties on 90% of its import volume? Or is it enough to

eliminate duties on 90% of the combined trade volume, eliminate duties on 90% of the combined trade volume,

that is, even if one of the parties fails to achieve the that is, even if one of the parties fails to achieve the

90% threshold in eliminating duties on its imports? 90% threshold in eliminating duties on its imports?

Furthermore, is 90% adequate? Should it be higher to Furthermore, is 90% adequate? Should it be higher to

95% or could it be lowered to 85%?95% or could it be lowered to 85%?””

�� Should account be taken of nonShould account be taken of non--traded products? traded products?

9797

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– The Quantitative and Qualitative School of ThoughtsThe Quantitative and Qualitative School of Thoughts

–– QuantitativeQuantitative:: Liberalisation of a significant proportion of Liberalisation of a significant proportion of the trade between the constituent territories. In the the trade between the constituent territories. In the examination of the Treaty of Rome, the six member examination of the Treaty of Rome, the six member states argued that the test would be satisfied if 80% of states argued that the test would be satisfied if 80% of the volume of trade between the parties was liberalised.the volume of trade between the parties was liberalised.

–– In the In the Line Pipe Line Pipe case, the United States argued that since case, the United States argued that since NAFTA covered 97% of the trade between the parties, it was NAFTA covered 97% of the trade between the parties, it was in conformity with the provisions of Article XXIV.8.in conformity with the provisions of Article XXIV.8.

–– While the quantitative approach has some positive aspects, While the quantitative approach has some positive aspects, it has some conspicuous drawbacks. It can permit parties to it has some conspicuous drawbacks. It can permit parties to RTAs to exclude sensitive sectors such as agriculture and RTAs to exclude sensitive sectors such as agriculture and textiles and clothing. [ Comments of Us and Australia over textiles and clothing. [ Comments of Us and Australia over the exclusion of agriculture from the free trade agreement the exclusion of agriculture from the free trade agreement between Singapore and Japan].between Singapore and Japan].

9898


–– To reduce the selectivity associated with the quantitative To reduce the selectivity associated with the quantitative approach, Australia suggested that the threshold figure should approach, Australia suggested that the threshold figure should be 95% of all the sixbe 95% of all the six--digit tariff lines listed in the harmonized digit tariff lines listed in the harmonized system.system.

–– Australia claims that the main advantages of its proposal are Australia claims that the main advantages of its proposal are that:that:�� (i) It would obviate the need to establish the extent to which t(i) It would obviate the need to establish the extent to which trade in rade in

a given product may have been affected by other measures in placa given product may have been affected by other measures in place.e.

�� (ii) Unlikely that approach would permit the carving out of any (ii) Unlikely that approach would permit the carving out of any major major sector because of the strong possibility that the permitted sector because of the strong possibility that the permitted exemptions would have to be spread out over a range of potentialexemptions would have to be spread out over a range of potentially ly sensitive sectors.sensitive sectors.

�� (iii) Approach is easily verifiable without requiring complex (iii) Approach is easily verifiable without requiring complex econometric studies. econometric studies.

–– CRTA has not adopted the Australian proposal. No textual CRTA has not adopted the Australian proposal. No textual basis, figure of 95% seen as ambitious by some Members. basis, figure of 95% seen as ambitious by some Members. Proposal has been reProposal has been re--submitted in the context of the Doha submitted in the context of the Doha negotiationsnegotiations

9999

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– The Qualitative Approach: Proponents argue that The Qualitative Approach: Proponents argue that

for a RTA to be consistent with the Article, it should for a RTA to be consistent with the Article, it should not exclude any major sector of economic activity.not exclude any major sector of economic activity.

–– They argue that the fact that trade in the soThey argue that the fact that trade in the so--called called sensitive sectors is usually small is no reason to exclude sensitive sectors is usually small is no reason to exclude them from the coverage of the agreement.them from the coverage of the agreement.

–– In the examination of the EFTA Agreement, the view was In the examination of the EFTA Agreement, the view was expressed that the exclusion of agriculture from the expressed that the exclusion of agriculture from the coverage of the Agreement was not in conformity with the coverage of the Agreement was not in conformity with the letter and spirit of Article XXIV letter and spirit of Article XXIV

–– The parties accepted that both the quantitative and The parties accepted that both the quantitative and qualitative elements were relevant, but they challenged qualitative elements were relevant, but they challenged the view that their agreement excluded agriculture. They the view that their agreement excluded agriculture. They pointed out that it covered a third of trade in agricultural pointed out that it covered a third of trade in agricultural products. products.

100100

WTO RulesWTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– In the examination of the Interim Agreements between the In the examination of the Interim Agreements between the

EC EC -- and the Czech Republic, Hungary, Poland and the and the Czech Republic, Hungary, Poland and the

Slovak Republic, the representative of Australia expressed Slovak Republic, the representative of Australia expressed

the view that the agreement did not comply with the the view that the agreement did not comply with the

““substantially all the trade requirementsubstantially all the trade requirement””, as there were , as there were

significant barriers in trade in agricultural products. He significant barriers in trade in agricultural products. He

asserted that for an agreement to comply with the asserted that for an agreement to comply with the

requirement, there needed to be free trade in agricultural requirement, there needed to be free trade in agricultural

products. Japan endorsed this statement.products. Japan endorsed this statement.

–– The EC disagreed; Australia had erroneously interpreted the The EC disagreed; Australia had erroneously interpreted the

terms of Article XXIV:8:terms of Article XXIV:8:

�� ““The word The word ““substantiallysubstantially”” qualified the phrase qualified the phrase ““all the tradeall the trade””. A . A

freefree--trade area did not mean complete free trade; otherwise the trade area did not mean complete free trade; otherwise the

word word ““substantiallysubstantially”” was meaninglesswas meaningless””

101101

WTO RulesWTO Rules�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994�� ECEC--s view has some textual support The word s view has some textual support The word ““substantialsubstantial””

does not mean does not mean ““allall””. Any other interpretation would be . Any other interpretation would be ignoring the ordinary meaning of the word ignoring the ordinary meaning of the word ““substantialsubstantial””..

�� In In United StatesUnited States -- Standards for Reformulated and Standards for Reformulated and

Conventional Gasoline Conventional Gasoline (WT/DS2/AB/R)(WT/DS2/AB/R), the Appellate Body , the Appellate Body

held that:held that:

–– "[O]ne of the corollaries of the 'general rule of interpretation"[O]ne of the corollaries of the 'general rule of interpretation' in ' in the Vienna Convention is that interpretation must give the Vienna Convention is that interpretation must give meaning and effect to all the terms of the treaty. An interpretmeaning and effect to all the terms of the treaty. An interpreter er is not free to adopt a reading that would result in reducing is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or whole clauses or paragraphs of a treaty to redundancy or

inutilityinutility..””–– Principle of Effective Treaty Interpretation has been Principle of Effective Treaty Interpretation has been

applied subsequently in a number of casesapplied subsequently in a number of cases

102102

WTO RulesWTO Rules


�� The Understanding on the Interpretation of Article XXIV The Understanding on the Interpretation of Article XXIV

provides in its preamble that:provides in its preamble that:

�� "Recognizing also that such contribution is increased "Recognizing also that such contribution is increased

if the elimination between the constituent territories of if the elimination between the constituent territories of

duties and other restrictive regulations of commerce duties and other restrictive regulations of commerce

extends to all trade, and diminished if any major extends to all trade, and diminished if any major

sector of trade is excluded."sector of trade is excluded."

�� Preambular language has been the subject of intense Preambular language has been the subject of intense

debate. In EC debate. In EC -- Czech Republic, Hungary, Poland and Czech Republic, Hungary, Poland and

the Slovak Republic, the Australian representative the Slovak Republic, the Australian representative

argued that the Understanding obliged parties to a RTA argued that the Understanding obliged parties to a RTA

to include all sectors:to include all sectors:

103103

WTO RulesWTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– "the WTO Understanding on the Interpretation of Article "the WTO Understanding on the Interpretation of Article

XXIV of the GATT clearly referred to a diminished XXIV of the GATT clearly referred to a diminished

contribution to the WTO system if any major sector of contribution to the WTO system if any major sector of economic activity were excluded. Notwithstanding the economic activity were excluded. Notwithstanding the

"coverage" of agriculture in these Agreements, the "coverage" of agriculture in these Agreements, the

sector was, in effect, excluded from the obligations of sector was, in effect, excluded from the obligations of

Article XXIV.Article XXIV.””

–– The EC disagreed and stated that the Australian The EC disagreed and stated that the Australian

representative had misconstrued the significance of the representative had misconstrued the significance of the

preambular language. Too much had been read into preambular language. Too much had been read into

the Understanding and that Members were not obliged the Understanding and that Members were not obliged

to liberalise all their trade.to liberalise all their trade.

104104

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– In In TurkeyTurkey--TextilesTextiles, the Panel expressed the view that , the Panel expressed the view that

““the ordinary meaning of the term the ordinary meaning of the term ““substantiallysubstantially”” in the in the

context of subcontext of sub--paragraph 8(a) appears to provide for paragraph 8(a) appears to provide for

both qualitative and quantitative componentsboth qualitative and quantitative components””..

–– The AB confirmed this view: The test in Article XXIV.8 The AB confirmed this view: The test in Article XXIV.8 required a certain percentage of trade to be liberalized required a certain percentage of trade to be liberalized

and also the nonand also the non--exclusion of any major sector of exclusion of any major sector of

economic activity.economic activity.

–– The AB said that the test offered some flexibility. The The AB said that the test offered some flexibility. The word word ““substantialsubstantial”” did not mean did not mean ““allall””, but it required , but it required

““something considerably more than merely something considerably more than merely somesome of the of the

trade.trade.””

105105

WTO RulesWTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– Why the substantial all trade requirement? Drafters Why the substantial all trade requirement? Drafters

thought that it would further the goal of trade thought that it would further the goal of trade liberalization. If that is the case, then logical to insist thaliberalization. If that is the case, then logical to insist that t parties to RTAs should comply with a higher threshold as parties to RTAs should comply with a higher threshold as suggested by Australia. The following statement by Clair suggested by Australia. The following statement by Clair Wilcox is very instructive:Wilcox is very instructive:�� A customs union creates a wider trading area, removes obstacles A customs union creates a wider trading area, removes obstacles

to competition, makes possible a more economic allocation of to competition, makes possible a more economic allocation of resources, and thus operates to increase production and raise resources, and thus operates to increase production and raise planes of living. A preferential system, on the other hand, retplanes of living. A preferential system, on the other hand, retains ains internal barriers, obstructs economy in production, and restraininternal barriers, obstructs economy in production, and restrains s the growth of income and demand. It is set up for the purpose othe growth of income and demand. It is set up for the purpose of f conferring a privilege on producers within the system and conferring a privilege on producers within the system and imposing a handicap on external competitors. A customs union isimposing a handicap on external competitors. A customs union isconducive to the expansion of trade on a basis of multilateralisconducive to the expansion of trade on a basis of multilateralism m and nonand non--discrimination; a preferential system is not."discrimination; a preferential system is not."

106106


–– Other Interpretative problems Other Interpretative problems

–– Unilateral Trade PreferencesUnilateral Trade Preferences�� Strongly debated in the past whether agreements under which Strongly debated in the past whether agreements under which

developed countries granted unilateral trade preferences to developed countries granted unilateral trade preferences to developing countries were consistent with the substantial all trdeveloping countries were consistent with the substantial all trade ade requirement? requirement?

�� In the first ACPIn the first ACP--EEC Convention of LomEEC Convention of Loméé, the view of the parties , the view of the parties that their agreement complied with the relevant provisions of ththat their agreement complied with the relevant provisions of the e GATT was challenged by some members of the Working Party, GATT was challenged by some members of the Working Party, who thought that Article XXIV obliged parties to undertake who thought that Article XXIV obliged parties to undertake reciprocal commitments.reciprocal commitments.

�� Trade and Commercial Relations between Australia and Papua Trade and Commercial Relations between Australia and Papua New GuineaNew Guinea-- argument of Australia that the agreement covered argument of Australia that the agreement covered substantially all the trade between the parties, notwithstandingsubstantially all the trade between the parties, notwithstandingthe lack of reciprocity was dismissed by some members of the the lack of reciprocity was dismissed by some members of the WP.WP.

�� EC/ACP states / Economic partnership Agreements / The EC EC/ACP states / Economic partnership Agreements / The EC would liberalise 100%, while the ACP states will liberalise would liberalise 100%, while the ACP states will liberalise between 80between 80--90 per cent of their trade with the EC90 per cent of their trade with the EC

107107


–– Other Interpretative problemsOther Interpretative problems

–– Unilateral Trade PreferencesUnilateral Trade Preferences�� In EEC In EEC -- Member StatesMember States’’ Import Regimes for Bananas, the Import Regimes for Bananas, the

compatibility of Lomcompatibility of Loméé II was challenged by Colombia, Costa Rica, II was challenged by Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela). The EEC argued that the Guatemala, Nicaragua and Venezuela). The EEC argued that the agreement was compatible with the provisions of Article XXIV:8 agreement was compatible with the provisions of Article XXIV:8 when read in conjunction with Part IV of the GATT 1994. The when read in conjunction with Part IV of the GATT 1994. The Panel rejected the argument of the EEC:Panel rejected the argument of the EEC:

–– ““The Panel noted that Article XXIV:8(b) clearly defined free The Panel noted that Article XXIV:8(b) clearly defined free --trade areas as areas in which duties and other restrictive trade areas as areas in which duties and other restrictive regulations of commerce are eliminated on substantially all regulations of commerce are eliminated on substantially all the trade between the constituent territories, not merely on thethe trade between the constituent territories, not merely on theimports into one of the constituent territories. The Panel imports into one of the constituent territories. The Panel noted that the EEC itself considered that the preference was noted that the EEC itself considered that the preference was justified not by Article XXIV on its own, but by Article XXIV justified not by Article XXIV on its own, but by Article XXIV taken in combination with the provisions of Part IV of the taken in combination with the provisions of Part IV of the General Agreement.General Agreement.””

108108

WTO RulesWTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– Other Interpretative problems Other Interpretative problems

–– Meaning of duties and other restrictive Meaning of duties and other restrictive regulations of commerce (ORRC)regulations of commerce (ORRC)

–– Not clear how different ORRC are from Not clear how different ORRC are from ““other other regulations of commerceregulations of commerce”” used in Article XXIV:5used in Article XXIV:5

–– Some WTO Members have argued that there is Some WTO Members have argued that there is a difference between the two phrases and that a difference between the two phrases and that the standards for evaluating them are different.the standards for evaluating them are different.

–– No textual support No textual support

109109

WTO RulesWTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– Other Interpretative problemsOther Interpretative problems

–– In a communication to the CRTA, Australia stated that:In a communication to the CRTA, Australia stated that:�� "Article XXIV does not give guidance on how the word "Article XXIV does not give guidance on how the word

"restrictive" should be interpreted. "restrictive" should be interpreted. …… [T]here appears to be a [T]here appears to be a presumption that at least some of the measures allowed under presumption that at least some of the measures allowed under the articles listed in Article XXIV:8 should be considered the articles listed in Article XXIV:8 should be considered restrictive when they are applied to the trade between the restrictive when they are applied to the trade between the parties to an arrangement. The perspective in Article XXIV:5 isparties to an arrangement. The perspective in Article XXIV:5 isdifferent. The assumption is that there is an undefined range odifferent. The assumption is that there is an undefined range of f regulations governing the trade of the parties to an arrangementregulations governing the trade of the parties to an arrangementwith the nonwith the non--parties. These regulations must not become parties. These regulations must not become restrictive as a result of the formation of a free restrictive as a result of the formation of a free -- trade area or a trade area or a customs unioncustoms union……It would appearIt would appear……that in terms of Article that in terms of Article XXIV:8, some regulations are always restrictive, whereas under XXIV:8, some regulations are always restrictive, whereas under Article XXIV:5 they can become more restrictiveArticle XXIV:5 they can become more restrictive””..

110110


–– Other Interpretative problemsOther Interpretative problems

–– In the examination of the FTA between Canada and the In the examination of the FTA between Canada and the United States, a member of the Working Party challenged United States, a member of the Working Party challenged the maintenance of QRs on dairy products and poultry by the maintenance of QRs on dairy products and poultry by the parties to the FTA. The representative of Canada in the parties to the FTA. The representative of Canada in response to the observation that Article XXIV:8(b) did not response to the observation that Article XXIV:8(b) did not give parties to an FTA give parties to an FTA ““an openan open--ended permission to ended permission to maintain QRsmaintain QRs”” stated that stated that ““they had considered it they had considered it necessary to maintain particular programmes for such necessary to maintain particular programmes for such products under Article XI, a measure which was consistent products under Article XI, a measure which was consistent with Article XXIV.8(b).with Article XXIV.8(b).””

–– Basis for the statement appears to be the exceptions Basis for the statement appears to be the exceptions clause in Article XXIV:8(b), which envisages that parties to clause in Article XXIV:8(b), which envisages that parties to a FTA or CU can impose restrictions on each othera FTA or CU can impose restrictions on each other’’s s exportsexports

111111

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– The Exceptions ClauseThe Exceptions Clause

�� ““A customs union shall be understood to mean the substitution of A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, a single customs territory for two or more customs territories, so so that (i) that (i) duties and other restrictive regulations of commerce duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII(except, where necessary, those permitted under Articles XI, XII, , XIII, XIV, XV and XX) are eliminated with respect to substantialXIII, XIV, XV and XX) are eliminated with respect to substantially ly all the trade between the constituent territories of the union oall the trade between the constituent territories of the union or at r at least with respect to substantially all the trade in products least with respect to substantially all the trade in products originating in such territoriesoriginating in such territories””..

�� Similar provision for FTAsSimilar provision for FTAs

–– Two main difficulties have been experienced: (a) whether the Two main difficulties have been experienced: (a) whether the list of exceptions in the Article is exhaustive; and (b) whetherlist of exceptions in the Article is exhaustive; and (b) whethera party to a CU or FTA should exempt the products from a party to a CU or FTA should exempt the products from other constituent members of the RTA when it imposes trade other constituent members of the RTA when it imposes trade restrictions sanctioned by the article.restrictions sanctioned by the article.

112112


–– The Exceptions Clause The Exceptions Clause -- Is the list exhaustive?Is the list exhaustive?

�� A subA sub--group of the Committee on the EEC considered whether a group of the Committee on the EEC considered whether a

party to a RTA could avail itself of Article XVIII of the GATT, party to a RTA could avail itself of Article XVIII of the GATT, even even

though the article was not listed in Article XXIV:8though the article was not listed in Article XXIV:8

�� Some members of the Working Party said that the list was Some members of the Working Party said that the list was

exhaustive:exhaustive:

–– paragraph 8(b), in derogation of the rule regarding the paragraph 8(b), in derogation of the rule regarding the

elimination of internal obstacles, made provision for certain elimination of internal obstacles, made provision for certain

restrictive trade regulations authorized under certain Articles restrictive trade regulations authorized under certain Articles

of the General Agreement; the list of these did not, however, of the General Agreement; the list of these did not, however,

include Article XVIII, concerning governmental assistance to include Article XVIII, concerning governmental assistance to

economic development. The application of the customs economic development. The application of the customs

duties and of the restrictions instituted under Article XVIII diduties and of the restrictions instituted under Article XVIII did d

not therefore benefit from the exception for which provision not therefore benefit from the exception for which provision

was made in Article XXIV."was made in Article XXIV."

113113



�� The EEC disagreed that the list was exhaustive:The EEC disagreed that the list was exhaustive:

–– the Rome Treaty did not make any legal use of the Rome Treaty did not make any legal use of

Article XVIII. Furthermore, the argument which Article XVIII. Furthermore, the argument which

had been drawn had been drawn a contrarioa contrario from the fact that from the fact that

Article XVIII was not one of those referred to in Article XVIII was not one of those referred to in Article XXIV:8(b) did not take into account the fact Article XXIV:8(b) did not take into account the fact

that Article XXI was not mentioned either. It would that Article XXI was not mentioned either. It would

be difficult, however, to dispute the right of be difficult, however, to dispute the right of

contracting parties to avail themselves of that contracting parties to avail themselves of that

provision which related, provision which related, inter aliainter alia, to traffic in arms, , to traffic in arms, fissionable materials, etc., and fissionable materials, etc., and it must therefore be it must therefore be

concluded that the list was not exhaustiveconcluded that the list was not exhaustive”” (italics (italics

added)added)

114114



�� In In Argentina Argentina -- FootwearFootwear, the Panel seemed to be of the view , the Panel seemed to be of the view that the Article was merely indicative and that other GATT that the Article was merely indicative and that other GATT Articles could be invoked by parties to RTAs:Articles could be invoked by parties to RTAs:

–– ““Although the list of exceptions in Article XXIV:8 of GATT clearlAlthough the list of exceptions in Article XXIV:8 of GATT clearly y does not include Article XIX, in our view, that paragraph itselfdoes not include Article XIX, in our view, that paragraph itselfdoes not necessarily prohibit the imposition of safeguard does not necessarily prohibit the imposition of safeguard measures between the constituent territories of a customs union measures between the constituent territories of a customs union or freeor free--trade area during their formation or after their completion. trade area during their formation or after their completion. A frequently advanced justification for the maintenance or A frequently advanced justification for the maintenance or introduction of safeguards clauses within regional integration introduction of safeguards clauses within regional integration areas is the argument that the obligation of Article XXIV:8 to areas is the argument that the obligation of Article XXIV:8 to eliminate all duties and other restrictions of commerce applies eliminate all duties and other restrictions of commerce applies only to "only to "substantially allsubstantially all””, but not necessarily to ", but not necessarily to "allall" trade " trade between the constituent territories. It could be argued that fobetween the constituent territories. It could be argued that for all r all practical purposes the application of safeguard measures to practical purposes the application of safeguard measures to particular categories of like or directly competitive products iparticular categories of like or directly competitive products is s unlikely to affect a trade volume that could put the liberalisatunlikely to affect a trade volume that could put the liberalisation of ion of "substantially all trade" between the constituent territories of"substantially all trade" between the constituent territories of a a customs union into questioncustoms union into question””

115115



�� The Panel, however, qualified this statement acknowledging that The Panel, however, qualified this statement acknowledging that

in certain situations unrestrained use of safeguard measures in certain situations unrestrained use of safeguard measures

could actually go beyond the acceptable limits under Article XXIcould actually go beyond the acceptable limits under Article XXIV.V.

–– Given that there is no logical reason for the omission of Given that there is no logical reason for the omission of

certain articles such as Articles XIX and XXI, can it be certain articles such as Articles XIX and XXI, can it be

argued that the list is merely indicative and not exhaustive.argued that the list is merely indicative and not exhaustive.

–– In In United States United States -- Line PipeLine Pipe, the issue was whether a party , the issue was whether a party

to a RTA could exempt the exports of its partner countries to a RTA could exempt the exports of its partner countries

from the application of a safeguard measure. The Panel from the application of a safeguard measure. The Panel

answered in the affirmative.answered in the affirmative. The AB thought it not The AB thought it not

necessary to rule on this issue.necessary to rule on this issue.

116116

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– The Exceptions Clause The Exceptions Clause -- Is the list exhaustive?Is the list exhaustive?

–– Based on the case law, it would appear that parties to a RTA Based on the case law, it would appear that parties to a RTA

have the flexibility to decide whether or not to impose a have the flexibility to decide whether or not to impose a

safeguard measure on the exports of its partners. A decisive safeguard measure on the exports of its partners. A decisive

factor could be the terms of the agreement. factor could be the terms of the agreement.

–– The Panel in The Panel in Argentina Argentina -- FootwearFootwear noted that:noted that:

�� ““In our view, the express omission of Article XIX of GATT from thIn our view, the express omission of Article XIX of GATT from the e

lists of exceptions in Article XXIV:8 of GATT read in combinatiolists of exceptions in Article XXIV:8 of GATT read in combination n

with the requirement to eliminate all duties or other restrictiowith the requirement to eliminate all duties or other restrictions of ns of

commerce on "substantially all trade" within a customs union, commerce on "substantially all trade" within a customs union,

leaves both options open, i.e., abolition of the possibility to leaves both options open, i.e., abolition of the possibility to impose impose

safeguard measure between the member States of a customs safeguard measure between the member States of a customs

union as well as the maintenance thereofunion as well as the maintenance thereof””..

�� As this issue was not raised on appeal, the Appellate Body did nAs this issue was not raised on appeal, the Appellate Body did not ot

rule on it.rule on it.

117117


–– The Exceptions Clause and the NonThe Exceptions Clause and the Non--Discrimination PrincipleDiscrimination Principle

–– Should RTA parties invoking the exceptions clause Should RTA parties invoking the exceptions clause observe the nonobserve the non--discrimination principle? The discrimination principle? The difficulty of this issue is underscored by the Industrial difficulty of this issue is underscored by the Industrial Council of Japan :Council of Japan :

�� ““There are two different views on the issue. One There are two different views on the issue. One

states that states that not not invoking safeguards against members invoking safeguards against members of the union area is a natural result of having a of the union area is a natural result of having a

customs union or free customs union or free -- trade area. The other says that trade area. The other says that

the purpose of safeguards is to protect domestic the purpose of safeguards is to protect domestic

industries, and it is therefore not rational to waive them industries, and it is therefore not rational to waive them

only for countries within the union or area. Safeguards only for countries within the union or area. Safeguards should therefore be applied in conformance with the should therefore be applied in conformance with the

obligation to provide mostobligation to provide most--favouredfavoured--nation treatment.nation treatment.””

118118

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– In In Argentina Argentina –– FootwearFootwear, , United States United States -- Line PipeLine Pipe and and USUS--

Wheat GlutenWheat Gluten, it was decided that parties to RTAs need not , it was decided that parties to RTAs need not

observe the nonobserve the non--discrimination principle when applying discrimination principle when applying

safeguard measures. However, a Member that had safeguard measures. However, a Member that had

conducted investigations covering imports from all sources, conducted investigations covering imports from all sources,

cannot later exempt imports from its FTA partners from the cannot later exempt imports from its FTA partners from the

application of the measure. (The parallelism requirement)application of the measure. (The parallelism requirement)

–– Given the overarching objective of ensuring a high degree of Given the overarching objective of ensuring a high degree of

liberalization among the parties to a RTA, would it make liberalization among the parties to a RTA, would it make

sense to oblige them to exempt each othersense to oblige them to exempt each other’’s exports from s exports from

the application of any trade restrictive measures?the application of any trade restrictive measures?

119119

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– In In Brazil Brazil –– Retreaded tyresRetreaded tyres, Brazil imposed an import ban on , Brazil imposed an import ban on

retreaded tyres on the grounds that they constituted a health retreaded tyres on the grounds that they constituted a health hazard. It argued that waste tyres were breeding grounds for hazard. It argued that waste tyres were breeding grounds for mosquitoes which spread illnesses such as malaria and mosquitoes which spread illnesses such as malaria and dengue fever. The measure was challenged by Uruguay, dengue fever. The measure was challenged by Uruguay, which argued that the measure was inconsistent with Brazilwhich argued that the measure was inconsistent with Brazil’’s s MERCOSUR obligations. Pursuant to a MERCOSUR ruling, MERCOSUR obligations. Pursuant to a MERCOSUR ruling, Brazil exempted the exports of remoulded tyres from its Brazil exempted the exports of remoulded tyres from its MERCOSUR partners.MERCOSUR partners.

–– The EC argued, The EC argued, inter aliainter alia, that the MERCOSUR exemption was , that the MERCOSUR exemption was discriminatory and that the import ban could not be justified discriminatory and that the import ban could not be justified under Article XX of the GATT 1994.under Article XX of the GATT 1994.

–– Brazil argued that Article XXIV permitted it to exempt the Brazil argued that Article XXIV permitted it to exempt the exports of its MERCOSUR partner countries from the import exports of its MERCOSUR partner countries from the import ban and that the measure did not increase its overall level of ban and that the measure did not increase its overall level of protectionprotection

120120

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– The EC rejected BrazilThe EC rejected Brazil’’s contention. It noted that Article XX of s contention. It noted that Article XX of

the GATT 1994 was included in the Exceptions Clause and it the GATT 1994 was included in the Exceptions Clause and it explicitly allowed RTA parties to impose restrictions on each explicitly allowed RTA parties to impose restrictions on each otherother’’s exports. In other words, Brazil would not be acting s exports. In other words, Brazil would not be acting inconsistently with Article XXIV if it extended the ban to coverinconsistently with Article XXIV if it extended the ban to coverremoulded tyres from its MERCOSUR partnersremoulded tyres from its MERCOSUR partners

–– The EC argued that the only possible exception which could be The EC argued that the only possible exception which could be invoked by Brazil was Article XXIV:5, but Brazil could not invoked by Brazil was Article XXIV:5, but Brazil could not satisfy the two conditions set by the Appellate Body in the satisfy the two conditions set by the Appellate Body in the Turkey Turkey –– Textiles case, namely (i)Textiles case, namely (i) the measure was introduced the measure was introduced upon the formation of a customs union that fully met the upon the formation of a customs union that fully met the requirements of Article XXIV:8(a) and 5(a); and (ii) the requirements of Article XXIV:8(a) and 5(a); and (ii) the formation of the customs union would have been prevented if it formation of the customs union would have been prevented if it the measure had not been introduced. the measure had not been introduced.

–– The EC position was supported by many third parties but the The EC position was supported by many third parties but the Panel did not directly rule on this issuePanel did not directly rule on this issue

121121


–– Are parties to CUs required to apply substantially the same Are parties to CUs required to apply substantially the same

duties and other regulations of commerce?duties and other regulations of commerce?

–– Whereas there is a convergence in the views of WTO Whereas there is a convergence in the views of WTO

Members that parties to CUs have to apply substantially Members that parties to CUs have to apply substantially

the same duties and other restrictive regulations of the same duties and other restrictive regulations of

commerce from the outset, there is a divergence in the commerce from the outset, there is a divergence in the

opinions of Members whether subsequent applicants have opinions of Members whether subsequent applicants have

to adopt the same restrictive regulations of commerce to adopt the same restrictive regulations of commerce

upon their accession, if they were not applying such upon their accession, if they were not applying such

restrictionsrestrictions

–– Issue came to the fore after the enlargement of the EU to Issue came to the fore after the enlargement of the EU to

include Austria, Finland and Sweden.include Austria, Finland and Sweden.

122122

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– Issue was also considered in Issue was also considered in Turkey Turkey --TextilesTextiles, where , where

following its CU with the EU, Turkey started applying following its CU with the EU, Turkey started applying

restrictions on textiles and clothing products maintained by restrictions on textiles and clothing products maintained by

the EU on these products. Turkey sought to justify its the EU on these products. Turkey sought to justify its

measures on the basis of Article XXIV:8(a)(ii), which obliges measures on the basis of Article XXIV:8(a)(ii), which obliges

parties to CUs to apply parties to CUs to apply ““substantiallysubstantially the same duties and the same duties and

other regulations of commerceother regulations of commerce””. (italics added). (italics added)

–– Turkey argued that since trade in textiles and clothing Turkey argued that since trade in textiles and clothing

products constituted about 40% of its trade with the EU, it products constituted about 40% of its trade with the EU, it

was important for them to apply the was important for them to apply the samesame regulations, regulations,

otherwise there could be massive trade diversion such as to otherwise there could be massive trade diversion such as to

fundamentally weaken the common commercial policy of the fundamentally weaken the common commercial policy of the

EU.EU.

123123

WTO Rules WTO Rules

�� Article XXIV:8 of the GATT 1994Article XXIV:8 of the GATT 1994–– After an extensive analysis of the provisions of Article XXIV, After an extensive analysis of the provisions of Article XXIV,

the Panel concluded that whereas in some situations, parties the Panel concluded that whereas in some situations, parties to a RTA could adopt inconsistent WTO measures, in this to a RTA could adopt inconsistent WTO measures, in this particular case, Turkey had failed to prove that it was particular case, Turkey had failed to prove that it was necessary for it to adopt the challenged measures.necessary for it to adopt the challenged measures.

–– This finding of the Panel was confirmed on appeal by the This finding of the Panel was confirmed on appeal by the

AB: AB: "We agree with the Panel that had Turkey not adopted the same "We agree with the Panel that had Turkey not adopted the same

quantitative restrictions that are applied by the European Commuquantitative restrictions that are applied by the European Communities, this nities, this

would not have prevented Turkey and the European Communities frowould not have prevented Turkey and the European Communities from m

meeting the requirements of submeeting the requirements of sub--paragraph 8(a)(i) of Article XXIV, and paragraph 8(a)(i) of Article XXIV, and

consequently from forming a customs union. We recall our concluconsequently from forming a customs union. We recall our conclusion that sion that

the terms of subthe terms of sub--paragraph 8(a)(i) offer some paragraph 8(a)(i) offer some –– though limited though limited –– flexibility to flexibility to

the constituent members of a customs union when liberalizing thethe constituent members of a customs union when liberalizing their internal ir internal

trade...[T]here are other alternatives available to Turkey and ttrade...[T]here are other alternatives available to Turkey and the European he European

Communities to prevent any possible trade diversion, while at thCommunities to prevent any possible trade diversion, while at the same time e same time

meeting the requirements of submeeting the requirements of sub--paragraph 8(a)(i)paragraph 8(a)(i)””

124124

Article V of the GATSArticle V of the GATS

125125

Article V of the GATSArticle V of the GATS–– The equivalent of Art XXIV in the field of trade in Services. The equivalent of Art XXIV in the field of trade in Services.

Before the GATS, the services component of RTAs was Before the GATS, the services component of RTAs was

not examined. not examined.

–– The provisions of the GATS mirror that of Article XXIV, The provisions of the GATS mirror that of Article XXIV, although the terms freealthough the terms free--trade areas or customs unions trade areas or customs unions

are not used. Term used is are not used. Term used is ““economic integrationeconomic integration””

reflecting the broad reach of the GATS reflecting the broad reach of the GATS -- It covers all the It covers all the

four modes of delivery.four modes of delivery.

–– The guiding principle is set out in Article V:4 which The guiding principle is set out in Article V:4 which

provides that any economic integration agreement "shall provides that any economic integration agreement "shall be designed to facilitate trade between the parties to the be designed to facilitate trade between the parties to the

agreement and shall not in respect of any Member agreement and shall not in respect of any Member

outside the agreement raise the overall level of barriers to outside the agreement raise the overall level of barriers to

trade in services within the respective sectors or trade in services within the respective sectors or

subsectors compared to the level applicable prior to such subsectors compared to the level applicable prior to such an arrangement".an arrangement".

126126

Article V of the GATSArticle V of the GATS–– Requirements under Article V of the GATSRequirements under Article V of the GATS

�� With its emphasis on "respective sectors or subsectors", it With its emphasis on "respective sectors or subsectors", it

is generally thought that Article V offers more protection for is generally thought that Article V offers more protection for

nonnon--participating countries than in Article XXIV. It has participating countries than in Article XXIV. It has

been suggested that as a result of the more desegregated been suggested that as a result of the more desegregated

(i.e. sub(i.e. sub--sectoral) focus taken in Article V, a WTO Member sectoral) focus taken in Article V, a WTO Member

might find it difficult to argue might find it difficult to argue -- in contrast to GATT 1994 in contrast to GATT 1994 --

that the average level or "general incidence" of protection that the average level or "general incidence" of protection

has not changed, regardless of what might have occurred has not changed, regardless of what might have occurred

at the level of individual products (subat the level of individual products (sub--sectors)sectors)

�� Provisions on compensation more elaborate than Article Provisions on compensation more elaborate than Article

XXIV. Stated clearly that compensation has to be on an XXIV. Stated clearly that compensation has to be on an

MFN basis.MFN basis.

127127

Article V of the GATS Article V of the GATS – Requirements under Article V of the GATS

�� Like Article XXIV:8, Article V:1(a) requires economic Like Article XXIV:8, Article V:1(a) requires economic integration agreements to have "substantial sectoral integration agreements to have "substantial sectoral coverage", which should be understood in terms of coverage", which should be understood in terms of the "number of sectors, volume of trade and modes the "number of sectors, volume of trade and modes of supplyof supply““

�� Two distinct views on the coverage of sectors: (i) Two distinct views on the coverage of sectors: (i) not a requirement that all sectors be covered under not a requirement that all sectors be covered under an EIA; (ii) exclusion of a sector from the coverage an EIA; (ii) exclusion of a sector from the coverage of the agreement not permissible (c.f. good of the agreement not permissible (c.f. good –– Art Art XXIV)XXIV)

�� View expressed that an agreement would not be View expressed that an agreement would not be consistent with Article V, if it provided for the consistent with Article V, if it provided for the a prioria prioriexclusion of one of the modes of supply. exclusion of one of the modes of supply.

128128

Article V of the GATS Article V of the GATS -- Requirements under Article V of the GATSRequirements under Article V of the GATS

�� View also expressed that Members wishing to View also expressed that Members wishing to

form an economic integration must be prepared form an economic integration must be prepared

generally to go beyond the liberalization generally to go beyond the liberalization

commitments under the GATS, if their commitments under the GATS, if their

agreement is to conform to the provisions of agreement is to conform to the provisions of

Article V.Article V.

�� Issue has arisen whether a requirement for Issue has arisen whether a requirement for

foreign suppliers to have commercial presence foreign suppliers to have commercial presence

in a country amounts to an in a country amounts to an a prioria priori exclusion of exclusion of

crosscross--border trade in these servicesborder trade in these services

129129

Article V of the GATS Article V of the GATS

––Requirements under Article V of the Requirements under Article V of the GATSGATS

�� Article V:1(b) provides that an EIA should "provide for Article V:1(b) provides that an EIA should "provide for

the absence or elimination of substantially all the absence or elimination of substantially all

discrimination...between or among the parties, in the discrimination...between or among the parties, in the

sectors covered under subparagraph(a) through [the] sectors covered under subparagraph(a) through [the]

elimination of existing discriminatory measures, elimination of existing discriminatory measures, and/orand/or

prohibition of new or more discriminatory measuresprohibition of new or more discriminatory measures““

�� What is the scope of this article? The Panel in What is the scope of this article? The Panel in Canada Canada

–– AutosAutos held that Canada could not avail itself of Article held that Canada could not avail itself of Article

V, as the import duty exemption was available only to a V, as the import duty exemption was available only to a

limited number of firms in the US. The favourable limited number of firms in the US. The favourable

treatment should have been extended to all services and treatment should have been extended to all services and

service suppliers of NAFTA membersservice suppliers of NAFTA members

130130


�� "Even assuming that the [Canadian measures at issue] "Even assuming that the [Canadian measures at issue]

could be brought within the scope of the services could be brought within the scope of the services

liberalization provisions of NAFTA, we note that the import liberalization provisions of NAFTA, we note that the import duty exemption under the [measures at issue] is accorded duty exemption under the [measures at issue] is accorded

to a small number of manufacturers/ wholesalers of the to a small number of manufacturers/ wholesalers of the

United States to the exclusion of all other United States to the exclusion of all other

manufacturers/wholesalers of the United States and of manufacturers/wholesalers of the United States and of

Mexico. The [measures at issue], therefore, provide more Mexico. The [measures at issue], therefore, provide more favourable treatment to only some and not all services and favourable treatment to only some and not all services and

service suppliers of Members of NAFTA, while, according service suppliers of Members of NAFTA, while, according

to Article V:1(b), an economic integration agreement has to Article V:1(b), an economic integration agreement has

to provide for 'the absence or elimination of substantially to provide for 'the absence or elimination of substantially all discrimination, in the sense of Article XVII', in order to all discrimination, in the sense of Article XVII', in order to

be eligible for the exemption from Article II of the GATS ...be eligible for the exemption from Article II of the GATS ...

131131


�� Although the requirement of Article V:1(b) is to provide Although the requirement of Article V:1(b) is to provide

nonnon--discrimination in the sense of Article XVII (National discrimination in the sense of Article XVII (National

Treatment), we consider that once it is fulfilled it would Treatment), we consider that once it is fulfilled it would

also ensure nonalso ensure non--discrimination between all service discrimination between all service suppliers of other parties to the economic integration suppliers of other parties to the economic integration

agreement. It is our view that the object and purpose of agreement. It is our view that the object and purpose of

this provision is to eliminate all discrimination among this provision is to eliminate all discrimination among

services and service suppliers of parties to an economic services and service suppliers of parties to an economic

integration agreement, including discrimination between integration agreement, including discrimination between suppliers of other parties to an economic integration suppliers of other parties to an economic integration

agreement. In other words, it would be inconsistent with agreement. In other words, it would be inconsistent with

this provision if a party to an economic integration this provision if a party to an economic integration

agreement were to extend more favourable treatment to agreement were to extend more favourable treatment to

service suppliers of one party than that which it extended service suppliers of one party than that which it extended to service suppliers of another party to that agreementto service suppliers of another party to that agreement””..

132132


––Requirements under Article V of the Requirements under Article V of the GATSGATS

�� Do parties have the flexibility to choose Do parties have the flexibility to choose

between eliminating existing discriminatory between eliminating existing discriminatory

measures or alternatively undertaking not to measures or alternatively undertaking not to

increase existing barriers (standstill increase existing barriers (standstill

provision) provision) –– several views have been several views have been

advanced by Membersadvanced by Members

133133

Article V of the GATS Article V of the GATS ––Requirements under Article V of the Requirements under Article V of the

GATSGATS�� Which discriminatory measures can be maintained by Which discriminatory measures can be maintained by

parties to an EIA? parties to an EIA? -- Article XI (payments and transfers); Article XI (payments and transfers);

Article XII (Restrictions to Safeguard BOPs); XIV (General Article XII (Restrictions to Safeguard BOPs); XIV (General

Exceptions); and XIV Exceptions); and XIV bisbis (Security Exceptions)(Security Exceptions)

�� Is list exhaustive? What about Article X Is list exhaustive? What about Article X –– Emergency Emergency

Safeguards?Safeguards?

�� Definition of Definition of ““reasonable timereasonable time--frame provisionframe provision”” –– Should it Should it

be the same as in goods (10 years) be the same as in goods (10 years) –– flexibility flexibility –– to be to be

determined on a casedetermined on a case--byby--case basiscase basis

�� Whether a gradual and selected extension of certain key Whether a gradual and selected extension of certain key

GATS obligations (such as NT) over time could be GATS obligations (such as NT) over time could be

regarded as being in breach of Articles V and XVII in regarded as being in breach of Articles V and XVII in

terms of pace and coverage?terms of pace and coverage?

134134

Article V of the GATS Article V of the GATS –– Requirements under Article V of the GATSRequirements under Article V of the GATS

�� Para. 4 provides that parties to an EIA must ensure that the Para. 4 provides that parties to an EIA must ensure that the agreement does not raise the overall level of barriers to trade agreement does not raise the overall level of barriers to trade

in services with respect to third parties within the respective in services with respect to third parties within the respective

sectors or subsectors compared to the level applicable prior to sectors or subsectors compared to the level applicable prior to

such an agreementsuch an agreement

�� Lack of consensus on how to proceed Lack of consensus on how to proceed –– Differences in Differences in regulatory mechanisms across countries and the absence of regulatory mechanisms across countries and the absence of

detailed trade data on services likely to impede a significant detailed trade data on services likely to impede a significant

evaluation of the level of barriers in effect before the evaluation of the level of barriers in effect before the

establishment of the RTAestablishment of the RTA

�� Other options Other options –– finding tariff equivalents of barriers; preventing finding tariff equivalents of barriers; preventing the the decrease ofdecrease of either the level, or growth, of trade in any either the level, or growth, of trade in any

sector or subsector below a historical trendsector or subsector below a historical trend

�� How to deal with extension of MFN exemptions by a CU to its How to deal with extension of MFN exemptions by a CU to its

area of enlargementarea of enlargement

135135

Article V of the GATS Article V of the GATS –– Requirements under Article V of the GATS Requirements under Article V of the GATS

–– S&DS&D�� Article V:3(a) allows flexibility to the parties to an agreementArticle V:3(a) allows flexibility to the parties to an agreement

that involves DCs in meeting the conditions of para. 1 that involves DCs in meeting the conditions of para. 1

(particularly with respect to 1(b)(particularly with respect to 1(b)

�� Flexibility to be granted on the basis of the level of Flexibility to be granted on the basis of the level of

development of the countries concerned, both overall and in development of the countries concerned, both overall and in

individual sectors and subindividual sectors and sub--sectors sectors –– scope of flexibility not scope of flexibility not very clearvery clear

�� Article V:3(b) provides that in the case of an agreement Article V:3(b) provides that in the case of an agreement

involving only developing countries, more favourable involving only developing countries, more favourable

treatment may be granted to juridical persons owned or treatment may be granted to juridical persons owned or

controlled by natural persons of the parties to such an controlled by natural persons of the parties to such an agreementagreement

�� Suggestion that some limitations and/or conditions may be Suggestion that some limitations and/or conditions may be

attached to this provisionattached to this provision

136136

The Enabling ClauseThe Enabling Clause

137137

Enabling ClauseEnabling Clause�� The Enabling Clause adopted in 1979 as part of The Enabling Clause adopted in 1979 as part of

the results of the Tokyo Round. Provided the results of the Tokyo Round. Provided permanent legal bases for the ff:permanent legal bases for the ff:

–– DerogationDerogation from the MFN principle to allow developed from the MFN principle to allow developed

countries to grant trade preferences on a generalized, countries to grant trade preferences on a generalized,

nonnon--reciprocal and nonreciprocal and non--discriminatory basis to discriminatory basis to developing Countries (Generalized System of developing Countries (Generalized System of

Preferences Preferences -- GSP; Deeper preferences for GSP; Deeper preferences for LDcsLDcs..

–– DerogationDerogation from the the MFN principle to permit from the the MFN principle to permit developing countries to enter into regional trade developing countries to enter into regional trade

agreements among themselves.agreements among themselves.

–– Does the Enabling Clause provide an alternative legal Does the Enabling Clause provide an alternative legal basis for the formation of RTAs?basis for the formation of RTAs?

–– MERCOSUR MERCOSUR -- Precedent or a special case?Precedent or a special case?

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Enabling Clause Enabling Clause �� Paragraph 2(c) permits the entering of global trading Paragraph 2(c) permits the entering of global trading

arrangements. Excludes agreements entered into between arrangements. Excludes agreements entered into between

developed and developing countries, which would have to be developed and developing countries, which would have to be

examined under Article XXIV of the GATT 1994 or Article V examined under Article XXIV of the GATT 1994 or Article V

of the GATS, unless a waiver is obtained.of the GATS, unless a waiver is obtained.

–– Before the enactment of the Enabling Clause, developing Before the enactment of the Enabling Clause, developing

countries relied on Part IV to form RTAs. ASEAN was notified countries relied on Part IV to form RTAs. ASEAN was notified

pursuant to the provisions of Part IV of the GATT 1947, but pursuant to the provisions of Part IV of the GATT 1947, but

later relater re--notified under the Enabling Clause.notified under the Enabling Clause.

�� Requirements under the Enabling ClauseRequirements under the Enabling Clause

–– The arrangement should be designed to facilitate and promote The arrangement should be designed to facilitate and promote

the trade of developing countries and not to raise barriers to othe trade of developing countries and not to raise barriers to or r

create undue difficulties for the trade of any other contractingcreate undue difficulties for the trade of any other contracting

partiesparties

–– Is this provision legally enforceable?Is this provision legally enforceable?

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Enabling ClauseEnabling Clause

–– Members invoking the Enable Clause should ensure that Members invoking the Enable Clause should ensure that

their agreement is not impeding the MFN reduction or their agreement is not impeding the MFN reduction or

elimination of tariff and nonelimination of tariff and non--tariff trade restrictions. tariff trade restrictions.

–– Flexibility for developing countries when it comes to Flexibility for developing countries when it comes to

reduction of tariffs; for nonreduction of tariffs; for non--tariff barriers, they have to be tariff barriers, they have to be

reduced in accordance with guidelines of Members.reduced in accordance with guidelines of Members.

–– Does the Enabling Clause authorise developing countries Does the Enabling Clause authorise developing countries

to form free trade areas or customs unions, or just to to form free trade areas or customs unions, or just to

exchange a few tariff preferences?exchange a few tariff preferences?

–– Does the Enabling Clause provide a legal cover for Does the Enabling Clause provide a legal cover for

agreements covering trade in services?agreements covering trade in services?

140140

Article IX of the Marrakesh AgreementArticle IX of the Marrakesh Agreement–– Article XXV of the GATT 1947 allowed contracting parties Article XXV of the GATT 1947 allowed contracting parties

to obtain a waiver from the CPs, if they were incapable of to obtain a waiver from the CPs, if they were incapable of

discharging their obligations under the General discharging their obligations under the General

AgreementAgreement

–– It could therefore be invoked by countries who, in breach It could therefore be invoked by countries who, in breach

of their Article I obligation, wanted to enter into of their Article I obligation, wanted to enter into

preferential trading arrangements. A waiver would preferential trading arrangements. A waiver would

typically be requested if the agreement did not comply typically be requested if the agreement did not comply

with the terms of Article XXIV or the Enabling Clause and with the terms of Article XXIV or the Enabling Clause and

[Art. V of the GATS][Art. V of the GATS]

–– France obtained a waiver to enter into a CU with Italy, France obtained a waiver to enter into a CU with Italy,

then not a GATT memberthen not a GATT member

–– EEC Members obtained a waiver to form a FTA in coal EEC Members obtained a waiver to form a FTA in coal

and steeland steel

141141

Article IX of the Marrakesh AgreementArticle IX of the Marrakesh Agreement– The United States and Canada obtained a waiver for their

agreement on free trade in automobiles in 1965

–– However, most of the waivers that were granted were to However, most of the waivers that were granted were to enable developed countries to extend trade preferences to enable developed countries to extend trade preferences to developing countries on a selective basis, e.g., Lomdeveloping countries on a selective basis, e.g., LomééConvention; Australian Preferences to Products originating Convention; Australian Preferences to Products originating in Papua New Guinea, Canadain Papua New Guinea, Canada’’s preferences to imports s preferences to imports from the Caribbean Basin (1968), and the United States from the Caribbean Basin (1968), and the United States preferences granted to Caribbean countries under the preferences granted to Caribbean countries under the Caribbean Basin Economic Recovery Act (1985).Caribbean Basin Economic Recovery Act (1985).

–– A number of these agreements have been reA number of these agreements have been re--notified notified pursuant to the provisions of pursuant to the provisions of Article IXArticle IX of the WTO of the WTO AgreementAgreement

–– Under this Article, Members wishing to obtain a waiver Under this Article, Members wishing to obtain a waiver have to submit a request to the Ministerial Conference, have to submit a request to the Ministerial Conference, which has to establish a timewhich has to establish a time--period not exceeding 90 period not exceeding 90 days to consider the request.days to consider the request.

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Article IX of the Marrakesh AgreementArticle IX of the Marrakesh Agreement

–– If a decision is not taken by consensus during the 90If a decision is not taken by consensus during the 90--day day

period, a decision could be taken by three fourths of the period, a decision could be taken by three fourths of the

MembersMembers

–– The article imposes a number of conditions:The article imposes a number of conditions:

–– The MC has to justify its decision to grant a waiver and state The MC has to justify its decision to grant a waiver and state

the terms and conditions governing the grant and the date the terms and conditions governing the grant and the date

on which it shall be terminatedon which it shall be terminated

–– There is a monitoring requirement when waiver is granted There is a monitoring requirement when waiver is granted

for more than one year. The MC expected every year to for more than one year. The MC expected every year to

““examine whether the exceptional circumstances justifying examine whether the exceptional circumstances justifying

the waiver still exist and whether the terms and conditions the waiver still exist and whether the terms and conditions

attached to the waiver have been metattached to the waiver have been met””. On the basis of the . On the basis of the

review, the MC may decide review, the MC may decide ““to extend, modify or terminate to extend, modify or terminate

the waiver.the waiver.””

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RTAs and WTO Dispute RTAs and WTO Dispute

SettlementSettlement

144144

RTAs and Dispute SettlementRTAs and Dispute Settlement�� Original Article XXIV did not have any explicit provisions on Original Article XXIV did not have any explicit provisions on

dispute settlement. Could well be that it was the intention of dispute settlement. Could well be that it was the intention of the CPs that all RTAs would be implemented only when they the CPs that all RTAs would be implemented only when they had been examined by the CPs and endorsed as being had been examined by the CPs and endorsed as being consistent with the provisions of Article XXIV. consistent with the provisions of Article XXIV.

�� The delicate balance which the GATT CONTRACTING The delicate balance which the GATT CONTRACTING PARTIES thought they had established started to unravel PARTIES thought they had established started to unravel with the failure of the first WP to reach a unanimous with the failure of the first WP to reach a unanimous conclusion on the consistency of the Treaty of Rome with the conclusion on the consistency of the Treaty of Rome with the provisions of Article XXIV.provisions of Article XXIV.

�� No legal challenges to the assertion of the EEC Members No legal challenges to the assertion of the EEC Members that their agreement was in conformity with the relevant rules that their agreement was in conformity with the relevant rules of the GATT.of the GATT.

�� Geopolitical considerations. Failure to reach clear and Geopolitical considerations. Failure to reach clear and conclusive results had significant implications for the parties conclusive results had significant implications for the parties to the agreement as well as for nonto the agreement as well as for non--participating countries. participating countries.

145145

RTAs and Dispute Settlement RTAs and Dispute Settlement �� What are the consequences of the inability of the CRTA to What are the consequences of the inability of the CRTA to

decide on the consistency or otherwise of notified decide on the consistency or otherwise of notified

agreements? agreements?

�� Could it mean that in the absence of any definitive Could it mean that in the absence of any definitive

conclusions, RTA parties are entitled to legally implement conclusions, RTA parties are entitled to legally implement

their agreement? their agreement?

�� The opposing argument is that, in the absence of any clear The opposing argument is that, in the absence of any clear

conclusions, it cannot be assumed that an agreement is conclusions, it cannot be assumed that an agreement is

WTOWTO--consistent . consistent .

�� The view has been advanced that where no firm conclusions The view has been advanced that where no firm conclusions

are made, nonare made, non--participating countries can have recourse to participating countries can have recourse to

other GATT provisionsother GATT provisions

146146

RTAs and Dispute Settlement RTAs and Dispute Settlement � Lack of Recommendations - Implicit Acceptance of the

Agreement?

�� Parties to RTAs have construed the terms of Art XXIV:7 very Parties to RTAs have construed the terms of Art XXIV:7 very

narrowly. Their main contention is that if their agreements narrowly. Their main contention is that if their agreements

really violated the provisions of Article XXIV, the CRTA really violated the provisions of Article XXIV, the CRTA

would have requested them to make changes to their would have requested them to make changes to their

agreements. By not making such recommendations, it could agreements. By not making such recommendations, it could

be taken that their agreement is WTObe taken that their agreement is WTO--consistentconsistent

�� Argument deficient on two grounds: First, it ignores the Argument deficient on two grounds: First, it ignores the

nature and dynamics of the decisionnature and dynamics of the decision--making process of the making process of the

WTO; and second, the WTO; and second, the a contrarioa contrario argument that failure to argument that failure to

reach conclusions is tantamount to acceptance of the reach conclusions is tantamount to acceptance of the

agreement is without any legal basis. It ignores the agreement is without any legal basis. It ignores the

underlying reasons as to why no conclusions are reached.underlying reasons as to why no conclusions are reached.

147147

RTAs and Dispute Settlement RTAs and Dispute Settlement � Lack of Recommendations - Implicit Acceptance of

the Agreement?

�� In In Turkey Turkey -- TextilesTextiles, Turkey argued that since the CRTA , Turkey argued that since the CRTA had not made any recommendations regarding the had not made any recommendations regarding the customs union agreement between it and the European customs union agreement between it and the European Community, the agreement could be taken to be in Community, the agreement could be taken to be in conformity with Article XXIV:conformity with Article XXIV:–– "Turkey considered that, though the CRTA had not yet "Turkey considered that, though the CRTA had not yet

concluded its examination of the Turkey concluded its examination of the Turkey -- EC customs EC customs union, there was no indication, two and a half years after union, there was no indication, two and a half years after the completion of the customs union, that it would the completion of the customs union, that it would recommend to the parties, under Article XXIV:7(b), that recommend to the parties, under Article XXIV:7(b), that modifications be made to the Agreement. modifications be made to the Agreement. …… No country No country had asked for compensatory adjustment with respect to had asked for compensatory adjustment with respect to any tariff bindings that might have been affected by the any tariff bindings that might have been affected by the Turkey Turkey -- EC customs union.EC customs union.””

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RTAs and Dispute Settlement RTAs and Dispute Settlement

� Lack of Recommendations - Implicit

Acceptance of the Agreement?

� The Panel rejected Turkey’s argument relying on

the earlier GATT case of EEC - Imports from Hong

Kong, where the EEC sought to justify its

imposition of QRs on certain products from HK on

the ground that the measures had been in force for

a long period.

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RTAs and Dispute Settlement RTAs and Dispute Settlement � Lack of Recommendations - Rejection of the

Agreement?

� In United States - Line Pipe, Korea argued that since the

CRTA had not approved of NAFTA, it should be presumed

that NAFTA was not consistent with the relevant rules of the

WTO. In response to a question from the Panel, Korea

asserted that:

– “Korea’s position that NAFTA has not been demonstrated to

be in compliance with Article XXIV:8 is based on the

preliminary analysis of the Committee on Regional Trade

Agreements which is still considering the question and has

not yet issued a final decision on the matter.”

� The Panel rejected Korea’s argument and held that prima

facie, NAFTA was consistent with the rules of the WTO:

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RTAs and Dispute SettlementRTAs and Dispute Settlement� Lack of Recommendations - Rejection of the

Agreement?– “In our view, the information provided by the United States in these

proceedings, the information submitted by the NAFTA parties to the Committee on Regional Trade Agreements (“CRTA”) (which the United States has incorporated into its submission to the Panel by reference), and the absence of effective refutation by Korea, establishes prima facie case that NAFTA is in conformity with Article XXIV:5(b) and (c), and with Article XXIV:8(b). Concerning Article XXIV:8(b), we do not consider that the fact that the CRTA has not yet issued a final decision that NAFTA is in compliance with Article XXIV:8 is sufficient to rebut the prima facie case established by the United States. Korea’s argument is based on the premise that a regional trade arrangement is presumed inconsistent with Article XXIV until the CRTA makes a determination to the contrary. We see no basis forsuch a premise in the relevant provisions of the Agreement Establishing the WTO (including, in particular, the Understanding on the Interpretation of Article XXIV of the GATT 1994). Nor has Korea pointed to any provision that might support such a premise.”

151151

RTAs and Dispute SettlementRTAs and Dispute Settlement

� Lack of Recommendations - Rejection of the Agreement?

� In Turkey – Textiles, the Appellate Body broadly hinted that WTO judicial bodies (panels and the Appellate Body) can rule on the overall consistency of agreements with WTO rules

� Prior to that ruling, the predominant view among WTO Members was that the dispute settlement system could be used to challenge aspects of an agreement, but not its overall consistency with WTO rules

� To date, WTO Members have exercised restraint by not challenging the overall consistency of agreement before panels?

� EPAs – would they be challenged?

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Conclusions

� Are RTAs undermining the effectiveness of the multilateral trading system?

� How can the WTO ensure the complementarity between RTAs and the multilateral trading system?

� Can the new transparency mechanism help the CRTA to make decisions?

� Clarification of the ambiguity in WTO rules – slow progress in the Doha negotiations

� Should panels and the Appellate Body be able to rule on the overall consistency of RTAs with WTO rules?

� Which way forward?

WTO Rules Relating to Regional Trade Agreements - UNITAR

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