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ORGANIZATION 2June1997
(97-2306)
Committee onRegional Trade Agreements
Eighth Session
EXAMINATION OFTHE FREE TRADE AGREEMENTS BETWEEN EFTA STATES
AND ESTONIA, LATVIA AND LITHUANIA
Note ontheMeeting of21February 19971
Chairman: H.E. Mr.Jaona Ravaloson (Madagascar)
1. Under Agenda Item2B(ii)-(iv) ofitsEighth Session, theCommittee onRegional Trade
Agreements tookuptheexamination ofthefreetrade agreements concluded between theIceland,
Liechtenstein, Norway andSwitzerland andeachofthethree Baltic countries (Estonia, Latvia and
Lithuania). Theexamination wasconducted onthebasis oftheStandard Format forInformation on
Regional Trade Agreements andaccordingly followed itslayout.
A. General Statements
B. Section I -Background Information ontheAgreement
I.3 -Scope
C. Section II -Trade Provisions
II.2.2 -Quantitative restrictions
II.3 -Rules oforigin
II.5 -Safeguards
II.6 -Anti-dumping andcountervailing measures
II.7 -Subsidies andstateaid
II.8 -Sector-specific provisions
A. General Statements
2. TheChairman saidthattheParties hadnotified three separate agreements. Inorder tosave
time, heproposed thatthethreeagreements beexamined jointly, astheycontained similar provisions.
However, theexamination ofeachagreement should beseenasadistinct legalexercise, andareport
would beprepared inrespect ofeachoftheagreements.
3. TherepresentativeofSwitzerland,speakingonbehalfofthePartiestotheAgreements,welcomed
theopportunity toexplain themechanics oftheagreements. Hesaidthateachofthethree Baltic
countries hadconcluded separate bilateral agreements withNorway andSwitzerland. Theagreements
concluded bythemandNorway hadbeenexamined inaccordance withtheprovisions ofArticle XXIV,
while theoneswithSwitzerland hadnotbeenexamined, although thirdcountries hadsubmitted questions
which weredulyresponded tobytheparties. Hepointed outthatnoquestions hadbeenreceived from
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interested thirdcountries inrespect oftheagreements under present consideration. Heassured Members
oftheCommittee, thattheParties werecommitted totransparency andhadprovided information in
accordance withtheStandard Format andsupplementary information including relevant tradedataand
statistics. Therules oforigin contained intheagreements under examination were inspired bythe
newPan-European cumulation rules. Heagreed withtheChairman 'sproposal thattheagreements
should beexamined jointly, andsaidthattheagreements were consistent withtheprovisions ofthe
Article XXIV ofGATT 1994.
4. TherepresentativeoftheUnitedStatescongratulatedthePartiesforprovidingdetailedinformation
which would facilitate thework oftheCommittee. Henoted thattherewereover25preferential trade
agreements currently existing inEurope. Itwasnecessary notonlytoexamine eachagreement totest
theirconsistency withtheprovisions ofArticle XXIV, butalsotheinter-relationship between the
agreements considering thattherewasoverlapping membership insome cases. While theUnited States
wasgenerally insupport ofregional trade agreements, itwanted allsuchagreements tocomply fully
withtherelevant multilateral rules. Itwasdoubtful iftheagreements under review complied fully
withArticle XXIV, astheyallexcluded agriculture from theircoverage contrary totheprovisions
ofArticle XXIV.
5. Therepresentative ofCanada welcomed theprovision ofdetailed information bytheParties,
andsaidthat hadfacilitated thework oftheCommittee. While ingeneral Canada thought the
agreements were liberal andwould facilitate trade between theParties, itwasconcerned about the
exclusion ofagriculture from thecoverage oftheagreements. Theconclusion ofatrade agreement
between aWTO Member andanon-member raised some practical problems. Since these countries
didnothavebound tariffs asrequired ofWTO Members, itwasdifficult toundertake ananalysis of
thegeneral tariff treatment before andafterthecreation ofthefree-trade area. How todealwith
agreements between aWTO Member andanon-Member wasasystemic issuewhich hadbeenidentified
intheChecklist ofSystemic Issues prepared anddistributed bytheSecretariat.
6. Therepresentative ofJapan saidthathisdelegation wasnotagainst examining thethree
agreements together. Heagreed withthesubstantive points made byCanada andtheUnited States.
Therepresentative ofAustralia associated herdelegation withtheviews expressed byCanada andthe
United States. Theexclusion ofagriculture fromthecoverage oftheagreements raised questions as
totheirconsistency withtheprovisions ofArticle XXIV ofGATT 1994.
7. Therepresentative oftheEuropean Communities welcomed thedetailed information provided
bytheParties. Itwould greatly assist theCommittee initsexamination oftheagreements. Itwas
important nottolosesight oftheunderlying reasons fortheconclusion ofpreferential trading
arrangements inEurope. These agreements weremeant toassist these countries toachieve economic
prosperity, ashadbeenachieved byWestern Europe. Itwasalsoimportant tobearinmind thatthe
present agreements followed thestructure andmechanics ofexisting EFTA agreements. Theexclusion
ofagriculture fromthecoverage ofthepresent agreements wasconsistent withprevious practice. He
stressed theneedfortheCommittee tofocus onthepresent testsetoutinArticle XXIV ofGATT 1994
andnottoimpose anynewstandards onMembers whose agreements were being examined bythe
Committee. Anyamendments totherules must bedone through theproper channels. Thedetails
oftheagreements should belooked at,instead offocusing atthisstage onthecompatibility ofthe
agreements withthemultilateral rules. While heappreciated thecomment made bytheCanadian
delegation regarding theproblems thatmight arisewhen examining anagreement concluded between
aWTO member andanon-WTO Member, hedidnotnecessarily share thesame viewinthispresent
case. Theaccession process offered Members theopportunity toassess therestrictiveness ofacountry 's
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B. Background Information ontheAgreement
Section I:3-Scope
8. Therepresentative ofSwitzerland saidthattheParties wereconvinced about theconsistency
oftheiragreements withthemultilateral rules. There wasnodoubt thattheagreements would facilitate
trade between theParties andnotraisebarriers tothetrade ofthirdcountries.
9. Therepresentative oftheUnited States wondered whether theagreements wereconsistent with
theprovisions ofArticle XXIV:8(b), which provided that"afree-trade areashallbeunderstood to
mean agroup oftwoormore customs territories inwhich theduties andother restrictive regulations
ofcommerce...areeliminatedonsubstantiallyallthetradebetweentheconstituentterritoriesinproducts
originating insuch territories". Annex Iofeach Agreement excluded products falling with
HSChapters25-97fromitscoverage.Mostagriculturalproductswerealsoexcluded,andsomeproducts
were thesubject ofbilateral agreements between individual EFTA countries andtheBaltic States.
After quoting theobjectives oftheParties asstated intheagreements, hewondered whether theParties
wanted toachieve freetradeinagricultural products. Noexplanation wasprovided bytheParties why
Article Iexcluded certain products fromthecoverage oftheagreements. Towhatextent weresteel,
textiles andapparel covered bytheagreements? Were thereanyspecial rulesgoverning theseproducts?
Article XXIV required parties toaregional trade agreement tosubstantially abolish allrestrictions
ontheirtrade. Itwasdifficult toreach adecision onthebasisofamathematical calculation, especially
where largesectors wereexcluded fromthecoverage ofthefreetradeagreement. Hewondered whether
theParties could provide information onwhich percentage oftheirtrade wascovered bypreferences.
Thisquestion wasimportant fortransparency reasons.
10. Therepresentative ofCanada associated hisdelegation withtheviews expressed bythe
representative ofUnited States ontheexclusion ofagriculture from thecoverage oftheagreements.
Itwasdifficult toassess whether theParties 'agreements were inconformity withtheprovisions of
Article XXIV. Thiswasbecause thethree Baltic States werenotmembers oftheWTO, andassuch
itwasdifficult tomeasure theduties andother regulations ofcommerce applicable intheirterritories
before andaftertheformation ofthefree-trade area. While heagreed withtheviewoftherepresentative
oftheEuropean Communities thataccession negotiations provided Members withanopportunity to
determine theduties andother regulations ofcommerce, andseekareduction inthelevel oftrade
barriers, itwasstilldifficult toassess correctly thelevel oftrade barriers where parties toatrade
agreement were notMembers oftheWTO. Toprotect theinterests ofthird countries, itwould be
advisable iftheacceding countries bound theirtariffs atnohigher ratethanthebaserateinforce when
negotiations forthefree-trade areawerecommenced. Since thiswasastringent condition which could
notbemetbytheacceding countries, itwasprobably premature fortheParties totheagreements to
claim thattheinterests ofthird countries would notbeaffected. Therepresentative ofAustralia
associated herdelegation withthecomments justmade byCanada andtheUnited States.
11. Therepresentative ofJapan saidthathisdelegation shared theconcerns expressed byCanada.
According toArticle XXIV:5(b), theduties andother regulations ofcommerce should notbemore
restrictive aftertheformation ofthefree-trade area. HadtheParties during thenegotiations raised
anyduties onimports from third countries? Could theyconfirm thattheywould notraiseduties,
andwould abide bytheterms ofArticle XXIV:5(b)? Therepresentative oftheUnited States agreed
withthecommentsofJapanandCanadaontheissuerelatingtothedeterminationofthegeneralincidence
oftaxation andother regulations ofcommerce prior toandaftertheformation ofthefree-trade area.
HesoughtanexplanationofhowtheRulesofOriginenshrinedintheagreementswouldworkinpractice.
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understanding thatArticle XXIV:5(b) mandated thecomparison ofduties andother regulations of
commerce priortoandaftertheformation ofthefree-trade area. Hefailed toseethedirect connection
between thisArticle andtheaccession process. Theissuewasasystemic oneandshould notbedealt
withinthecontext oftheexamination process.
12. TherepresentativeoftheEuropeanCommunitiesreiteratedthattheagreementsunderexamination
didnotdepart fromprevious agreements concluded bytheEFTA countries. Theexamination process
should notonlybelimited tothemultilateral agreements thathadbeenconcluded between theParties;
itshould cover alltherelevant bilateral agreements thathadbeenentered intobytheParties. Referring
tothecomment oftherepresentative oftheUnited States thatallsectors ofeconomic activity should
becovered bytheagreements, hesaidthattheprocess oftrade liberalization wascomplex. Ithad
institutional, economic, political, structural andconstitutional ramifications, andassuchacareful
approach wasneeded.
13. Therepresentative ofSwitzerland agreed withtherepresentative oftheEuropean Communities
thatitwasnecessary todrawadistinction between issues ofsystemic importance andthose which were
relevant totheexamination process. Itwasimperative fortheCommittee tofocus onthelatter. He
confirmed thattheParties would havefreetrade insteel, textiles andclothing products. Addressing
theissue raised astothescope andcoverage oftheagreements, hereferred totheStandard Format
Information provided bytheParties andsaiditcontained essential information which would clarify
mattersfordelegations.Hereaffirmedtheirbeliefthattheagreementswereconsistentwiththeprovisions
ofArticle XXIV andthattherequirement thattheParties should substantially liberalise tradebetween
themselves hadbeenmet. Soalsohadtheycomplied withtherequirement thatbarriers should not
beraised tothetrade ofthird countries. Thephrase "substantially alltrade" wasnotdefined in
Article XXIV. Themeaning of"substantial" wasnot"all", andassuchitwould beincorrect toassert
thatallsectors should beliberalised. Itwasimportant tobearinmind thattheexact words of
Article XXIV:8 were"substantially allthetrade", andnot"trade insubstantially allproducts" or"trade
insubstantially allsectors". Agriculture wasnotexcluded fromtheagreements butdealtwiththrough
bilateralagreementsorspecificannexesandprotocolswithintheAgreements(fish,processedagricultural
products) because theEFTA countries didnothaveacommon agricultural policy norfreetrade in
agricultural products between themselves. Notwithstanding that,thetrade inagricultural products
between theParties wassubstantially liberalized.
14. Therepresentative ofNewZealand saidthatitwasdifficult toavoid systemic issues when
carrying outanin-depth exercise suchastheonecurrently underway. Testing theconsistency ofan
agreement withtheprovisions ofArticle XXIV wasbound togiverisetodifferences inopinion as
regards thescope ofthemultilateral rules. Hewondered whether theParties could explain whythey
havenotdeemed itnecessary tohaveacommon agricultural policy asaprecondition forliberalization
onagriculture. Didthatmean theParties would never havefreetrade inagricultural products?
15. Therepresentative oftheEuropean Communities saidthatthewhole debate ontherelationship
between Article XXIV:5(b) andtheaccession process should beputinaproper perspective. Hethought
itwasnotpossible tointerpret therules ofArticle XXIV asconstraining therights ofthirdparties.
Ifthatweretobethecase,itwould undermine therationale behind theexamination process. Compliance
withtheprovisions ofArticle XXIV should notdeny third countries theright toconduct tariff
negotiations withanycountry, whether ornotthatcountry wasintheprocess ofacceding totheWTO.
16. TherepresentativeoftheUnitedStatessaiditwasnottheintentionofMembersoftheCommittee
torequire Parties totheAgreement tocomply withahigher threshold thanwasspecified intheprovisions
ofArticle XXIV. Hethought thecomment bytherepresentative ofNewZealand wasinstructive inWT/REG28/M/1
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thatregard. Itwasimportant toaskfactual questions, eveniftheyhadasystemic element. Thephrase
"substantially alltrade" should begiven abroad definition consistent with theoverall aimof
Article XXIV.
17. Therepresentative ofSwitzerland reiterated thatagricultural products were notcompletely
excluded fromthecoverage oftheagreements. Hereferred delegations totheAnnexes andProtocols
provided bytheParties, andsaidthatagreements wereconsistent withtheprovisions ofArticle XXIV.
18. Therepresentative ofNorway clarified hisearlier statement bysaying thatthelevels ofduties
prior toandafter theformation ofthefree-trade areawere ofrelevance tothetestlaiddown in
Article XXIV:5. However, theirlinkage totheaccession process wasnotdirectly relevant tothe
examination process, andwasanissue ofsystemic importance. Therepresentative ofJapan saidthat
hisdelegation wasnotasserting thattheParties wereinbreach ofArticle XXIV:5(b), buthewanted
anassurance thattheywould comply withtheterms oftheArticle. What hisdelegation wasinterested
inseeing wasthattheParties would notraise barriers tothetrade ofthird countries during the
negotiations. Therepresentative ofSwitzerland confirmed thattheParties hadandwillcontinue to
abide bytheterms ofArticle XXIV:5(b). Therepresentative ofEstonia saidthattheyhadnotincreased
barriers tothetrade ofthirdcountries during thenegotiations forthefree-trade areawiththeEFTA
countries. Therepresentative oftheUnited States saidthattheParties hadtodemonstrate thattheir
agreements wereinconformity withtheprovisions ofArticle XXIV. Hewondered whether theParties
hadincreased theirMFN ratesduring thenegotiations orprior totheentry intoforce ofthefreetrade
agreements. Therepresentatives ofLithuania andLatvia confirmed thattheyhadnotraised barriers
tothetrade ofthirdcountries during orafterthenegotiations forthecreation ofthefree-trade area.
C. Trade Provisions
Section II:2.2 -Quantitative restrictions
19. Therepresentative oftheUnited States asked whether theParties hadinplace anynon-tariff
import measures, charges orquantitative restrictions. Iftheyhad,hisdelegation would appreciate
receiving alistoftheaffected products. Therepresentative ofSwitzerland saidthatasbetween the
Parties, therewerenoquantitative restrictions. However, thosebeing maintained byindividual countries
hadbeennotified andwere deemed tobeconsistent withtheWTO.
Section II:3-Rules oforigin
20. Therepresentative ofSwitzerland saidthattherulesoforigin ascontained intheAgreements
were consistent withtheWTO Common Declaration With Regard toPreferential Rules ofOrigin.
Therules, which provided forcumulation attheEuropean level, weretransparent andwould notbe
adisguised restriction ontrade ofthirdcountries. Thenewruleswould takeeffect inearly 1997, and
would replace thevarious rules oforigin contained inanumber offreetrade agreements. Therules
werecurrently applicable tothefreetrade agreements entered intoforce bytheEFTA countries and
Estonia andLatvia. They would soonbeapplicable totheAgreement entered intoforce bytheEFTA
countries andLithuania. TheEFTA countries hadtheintention ofnotifying separately thenewrules
oforigin totheWTO asamendments tothefree-trade areas under examination. Induecourse, the
rules oforigin enshrined inevery trade agreement concluded withcountries inCentral andEastern
Europe would bereplaced bythePan-European cumulation rules. Oneeffect oftheimplementation
ofthenewruleswasthatsemi-finished products, originating inapartner country linked tothesystem,
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anyrestriction. Products originating intheEuropean Union andexported toacountry linked tothe
system could beadmitted intoanEFTA country atduty-free orpreferential ratesinaccordance with
theduty-dismantling schedules established under thevarious agreements. Thiswasnotpossible before
theapplication ofthenewsystem. Other advantages ofthenewsystem ofcumulation oforigin for
producers andtraders werethatitsimplified customs procedures. Once aproduct hadbeengiven origin
ofoneofthecountries concerned, there wasnolonger theneedtoverify itsorigin status. Thishad
alsopractical advantages forindustries established inEurope, including foreign-owned ones; theycould
useliberally inputs originating inorinfreecirculation intheregion, andsitetheirproduction facilities
inanycountry linked tothesystem. Itwasimportant tonotethatnonewbarriers were erected to
inputs from thirdcountries. Onthecontrary, therules hadbeenmade more flexible.
Sections II:5and6-Safeguards andAnti-dumping andcountervailing measures
21. Therepresentative ofJapan asked whether safeguard oranti-dumping measures applied by
aParty tothefree-trade areawould beadopted bythepartner countries? Therepresentative ofthe
United States associated hisdelegation withthequestion posed byJapan. Hefurther asked whether
theagreements required margins ofpreference vis-à-vis third countries tobemaintained when the
safeguard provisions wereinvoked? ItwashishopethattheParties would adhere totheprovisions
ofArticle XIX. HadtheParties invoked anysafeguard measures intherecent past? Ifso,against
which products andcountry? Itappeared thatthesafeguard provisions intheagreements werevague
ascompared totheprovisions ofArticle XIX. Hehoped thattheParties would abide byWTO
disciplines.
22. Therepresentative ofSwitzerland saidthatParties totheagreements werenotobliged toadopt
safeguard oranti-dumping measures being applied byoneofthem. Inresponse tothequestion posed
bytheUnited States concerning themargins ofpreferences, hesaidthattherewasnosuchrequirement,
when safeguard measures were invoked bytheParties. Heassured theCommittee thattheParties
would observe thedisciplines ofArticle XIXwhen invoking safeguard measures against theimports
fromthirdcountries. Todate,theParties hadnotinvoked anysafeguard measures. Theagreements
specified thevarious cases which would entitle Parties toinvoke safeguard measures. Parties adopting
safeguard measures wereobliged topromptly notify theJointCommittee, which would consult regularly
onthemeasures withtheviewofrecommending theirrelaxation, substitution orabolition. Therules
were transparent andwould notconstitute adisguised restriction onthetrade ofthirdcountries.
Section II:7-Subsidies andState aid
23. Therepresentative oftheUnited States asked howtheprovisions relating tostatemonopolies
could bereconciled withArticle IIIofGATT 1994, especially theprovisions relating tothirdcountries?
HadtheParties notified allState Monopolies operating within theirterritories inaccordance with
Article XVII. Iftheyhadnot,could theyfurnish theCommittee withsuchalist?Therepresentative
ofSwitzerland saidthatthere wasnospecific listofStateMonopolies intheagreements. TheParties
hadmade thenecessary notifications inaccordance withArticle XVII anditsrelated Understanding.
24. Therepresentative oftheUnited States sought assurance stateaidsgranted bytheParties would
conform withtherelevant WTO disciplines. Hestressed theimportance oftransparency, andhoped
thattheParties would promptly notify anystateaidsgranted bythem. Therepresentative ofSwitzerland
assured theUnited States thattheParties would continue tostrictly adhere totheWTO disciplines on
thesubject. Therequirements governing stateaidintheagreements werestricter thanthose espoused
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Section II:8-Sector-specific provisions
25. Therepresentative oftheUnited States asked which agricultural policies oftheParties had
thepotential tohinder the"harmonious development oftrade inagricultural products"? Wasitthe
objective ofthebilateral agreements tocoordinate agricultural policies ortofoster freetrade in
agricultural products? Given theletter andspirit ofArticle XXIV, should notanyrestrictive policies
bediscarded? Itwastheviewofhisdelegation thatforanagreement tobeconsistent withtheterms
ofArticle XXIV, nomajor sector ofeconomic activity should beexcluded. Theagricultural products
which wereexempted fromthecoverage oftheagreements should beincluded iftheParties wereto
comply withtheirArticle XXIV obligations. DidanyoftheParties provide bilateral preferential
treatment toagricultural products under MFN tariffratequotas? Iftheanswer wasyes,could theParties
provide thenecessary details. Hadtheenlargement oftheEuropean Union andtheimplementation
oftheWTO Agreement impacted onthebilateral agricultural agreements? Ifso,could theParties
provide thenecessary details?
26. Therepresentative ofCanada sought clarification ofthelasttwosentences ofparagraph 25
indocument WT/REG28/2. Itwashisunderstanding thatthere were afewproducts subject to
preferential tariff quotas. Were these tariff quotas applied across theboard inthesense ofbeing also
applicable toMFN suppliers oftheaffected products, orwere theyapplicable toonlytheParties of
thefreetrade agreements? Wasthequantity included intheMFN allocation orwasitsupplementary
totheMFN quota which might existforthesame products? What didtheParties mean when they
saythatthey"donotapply onagriculture anysubsidies which arespecific totheirmutual trade"?
27. Therepresentative ofAustralia wondered howthebilateral arrangements between theParties
facilitated trade inagricultural products? Between themselves, didtheParties maintain quotas or
quantitative restrictions inagricultural trade? Ifso,could theyspecify which form thequantitative
restrictions took, andwhether theywould phased out.Apart from thepreferential tariff quotas, did
theParties maintain MFN tariff quotas?
28. Therepresentative ofSwitzerland saidthatitcould beseenfromtheagreements andthebilateral
arrangementsthatprogressiveliberalizationoftradeinagriculturalproductswasforeseen.Heconfirmed
thattheParties didnotmaintain anyquantitative restrictions inagricultural trade, andthattheywere
applying preferential quotas inaccordance withtherelevant WTO rules. Notifications hadbeenmade
totheCommittee onAgriculture. Healsoconfirmed thattherewerenospecific subsidy arrangements
inthebilateral arrangements orthefreetrade agreements.
29. TheChairman recalled thatithadbeenagreed thattherewould bethreeseparate reports, each
covering oneoftheagreements thathadbeenexamined. TheChairman 'sstatement wasbroadly
supported byanumber ofdelegations.