RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG83/M/1
WT/REG84/M/1
4 January 2001
(01-0029)
Committee on Regional Trade Agreements
Twenty-Seventh session
EXAMINATION OF THE FREE TRADE AGREEMENTS BETWEEN
HUNGARY AND LITHUANIA AND HUNGARY AND LATVIA
Note on the Meeting of 12 October 2000
Chairman:  Mr. Jae Gil LEE (Korea)
1. The meeting was convened in document WTO/AIR/1389.
2. Under Agenda Item D.III-IV of its Twenty-Seventh Session, the Committee on Regional
Trade Agreements (hereinafter the CRTA or th e Committee) took up the examination of the Free
Trade Agreements (FTAs) between Hungary and Li thuania and Hungary and Latvia.  The following
topics were discussed:
A. G ENERAL REMARKS
B. S ECTION II - T RADE PROVISIONS
C. S ECTION IV - O THER
A. G ENERAL REMARKS
3. The Chairman proposed that the FTAs betwee n Hungary and Lithuania and between Hungary
and Latvia be considered together, on the understanding that it would have no effect on the
examination per se , as each Agreement would be judged on its own merit and have its own report
with its own conclusions.  The notifications of the Agreements could be found in documents
WT/REG83/N/1 and WT/REG84/N/1, and the texts in documents WT/REG83/1 and WT/REG84/1,
respectively.  He would start by asking the Parties and other Members for general comments and then
turn to the specifics of the Agreements, using the Standard Formats (WT/REG83/3 and WT/REG84/3,
respectively) to guide the debate.  He recalled th e terms of reference for each of the examinations,
adopted on 24 January 2000 by the Council for Trade in Goods, as contained in documents
WT/REG83/2 and WT/REG84 /2 and its Corrigendum.
4. The representative of Latvia, speaking also on behalf of the delegation of Hungary, said that
the Free Trade Agreement between Hungary and Latvia had been signed on 10 June 1999 and had
entered into force on 1 January 2000.  The Parties had notified the text of the Agreement to theCommittee on 20 December 2000, promptly after its ratification by both Parties and before its entry
into force.  The primary objective of the Agreem ent was to establish a free trade area in accordance
with the definition set out in GATT Article XXIV and to develop trade between the Parties, which
was at a modest level at that time.  The purpose of the Agreement was to promote bilateral trade on
the basis of mutual advantage without putting obstacles to the trade of third parties in accordance withGATT Article XXIV:5(b).  The Hungary – Latvia FTA was an integral part of the system of overall
economic integration in Europe.  The Agreement provided for the elimination of all customs duties
and quantitative restrictions on industrial products originating in the Parties with the exception of a
few products, for which the customs duties and quantitative restrictions would be eliminated duringWT/REG83/M/1
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the short transitional period ending on 1 January 2001.  For agricultural products, the Parties applied
preferential treatment as from the entry into for ce of the Agreement.  The Agreement established a
mechanism of periodical review with a view to de veloping and deepening the relations established by
the Agreement, including further progressive dismantling of the remaining customs duties.  TheParties were convinced that the Agreement was in conformity with WTO rules.  The Standard Format
prepared by the Parties included detailed information on Hungary-Latvia trade regulations, with
extensive statistical information provided in the An nexes.  The Parties had not received any questions
thus far on Standard Format; however, they were fully prepared to answer during the examination
session.
5. The representative of Hungary, speaking also on behalf of the delegation of Lithuania, said
that the Free Trade Agreement between Lithuania and Hungary had been signed on
13 November 1998, ratified on 12 October and on 9 November 1999, respectively, and had entered
into force on 1 March 2000.  The Council for Trade in Goods had been informed of the signing of the
Agreement as early as 25 March 1999.  The Agreement had been notified to the WTO on
20 December 1999, three months and eleven days before its entry into force.  The purpose of the
Agreement was to facilitate and increase trade as well as to promote closer cooperation betweenLithuania and Hungary, without raising barriers to trade with other WTO Members.  Indeed, it was
the view of the Parties that the duties and other regulations of commerce maintained by the Parties
were not in any sense higher or more restrictive than before the formation of the free- trade area.
Duties and other restrictive regulations of commerce had been or, by the end of that year, would be
eliminated on substantially all trade between the Parties.  Consequently, the delegations of Lithuaniaand Hungary were convinced that the Agreement was in compliance with the specific requirements of
GATT Article XXIV and its Understanding.
6. The representative of the European Communities expressed his delegation's strong support
and positive view towards the Agreements and towards the evolving relationships between the Parties.
The Agreements needed to be seen in the context of  regional integration within Europe.  Referring to
the Secretariat's presentation of the Mapping of Regional Trade Agreements earlier that day, he said
that both Agreements would fall into the category of agreements that would eventually disappear,
since all three Parties were candidates for accession to the European Union.  Economically, it made
excellent sense that the Parties to the Agreements should pursue liberalization and economic
integration to the greatest extent possible before becoming members of the European Union, which
would involve more far-reaching economic integration, covering services and other areas.  Morespecifically, regarding compatibility in terms of GATT Article XXIV, it was his delegation's view that
the Agreements met the relevant requirements and covered substantially all trade.  They had an
admirably short transition period of one year, which was considerably less than the ten year maximum
foreseen in the Understanding and they did not raise barriers to trade with third parties.  Accordingly,
the examination by the Committee needed to lead to  the conclusion that they were compatible with
GATT requirements.
7. The representative of the Czech Republic, speaking also on behalf of the Slovak Republic, and
referring to both Agreements, congratulated the Parties on the conclusion of measures which would
promote European preferential trade and support the European integration process.  They appreciated
the timely notification of both Agreements and thanked the Parties for the comprehensive and
convincing information submitted, pertaining to both f actual and statistical parts of the Standard Format.
In conclusion, they were persuaded that the Agreements in question covered substantially all the trade
and met all criteria prescribed by GATT Article XXIV.WT/REG83/M/1
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B. S ECTION II - T RADE PROVISIONS
8. The representative of Australia said that his delegation had serious concerns regarding the
coverage of agriculture and the use of concessions  in both Agreements.  His delegation would submit
relevant questions in writing. The representative of Japan echoed his concerns.
9. The representative of Canada shared the concerns expressed by the representative of Australia
with respect to trade cove rage in agricultural goods.  Her delegation applauded the level of liberalization
and the short transition period applying to industr ial products, all of which would receive duty-free
treatment at the time of full implementation of the Ag reement.  However, the introductory remark by the
Parties stating that there was no agricultural pr oduct on which duty-free treatment was provided called
into question the overall conformity of the Agreem ents with the provisions of GATT Article XXIV,
which called for the elimination of duties on substan tially all the trade.  Sh e wondered how that test
could be met when a number of sectors were excl uded from the Agreements.  Referring to Section II.1.1
of the Standard Format of the Agreement between  Hungary and Lithuania, she wondered why different
base years - 1997 for Lithuania and 1992 for Hungary - had been used to determine the basic duty to
which successive reductions of customs duties would be applied.
10. The representative of Estonia said that his dele gation found the trade coverage sufficient and the
degree of liberalization achieved by the Agreements most appropriate.
11. The representative of the United States said that her delegation had some serious concerns about
the lack of complete coverage, in particular fo r products in the agricultural sector, where only
preferences but no elimination of duties had been provided for.  She wondered whether there was a
special pattern of preferential trea tment with respect to agricultural products, for example, whether there
was a margin of preference across all tariff lines or depending on the individual tariff line.  She alsowondered how the preferences related to other trad e agreements to which the respective Parties were
party and whether there were similar margins of pr eference in those.  Her delegation would submit
further questions in writing in orde r to get a cross-cutting perspective.
12. The representative of Hungary said that sufficien t time had been available between the issuing
of the Standard Formats and the examination round for delegations to submit questions.  Still, his
delegation would be happy to reply to questions posed that day or submitted later in writing.  The Partieswere of the view that they had satisfied the conditi on of elimination of duties on substantially all trade,
which did not mean all trade.  Non-zero preferentia l treatment was not elimination but was within the
definition of substantially all trade.  Therefore both Agreements were in line with the provisions
GATT Article XXIV.  Replying to a question by the repr esentative of the United States, he said that the
preferential rates were subject to negotiations between  the Parties and varied from one Agreement to the
other.  It was up to the Parties themselves to decide, based on their economic and trade interests, what
kind of products would be included in Agreement and to what extent they were granted preferential
treatment.
13. The representative of Latvia said that, contrary to what some delegations had stated, agriculture
was included in the scope of the Agreement, which covered HS Chapters from 1 to 97.  Referring to a
question by the US on whether there was an across- the-board formula for elimination of duties and
concessions, she said that there was no such formula,  but that the Parties would do their best for rapid
liberalization.
14. Replying to the question regarding the use of di fferent base years in the FTA between Hungary
and Lithuania, the representative of Hungary said that it was due to historical events.  On behalf of all
Parties, he said that the concessions negotiated in  the agricultural sector in the Agreements might be
subject to further improvements, which was provid ed for in the Agreements.  There were alreadyWT/REG83/M/1
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examples from other agreements, where further concessions had been granted on the basis of the
evolutionary clause.
15. The representative of Slovenia expressed her delegation's appreciation for the information
provided on the Agreements, which she fully supported.
16. The representative of the United States said that her delegation had expressed concern on many
occasions with the Pan-European System of Cumula tion of Origin.  She asked whether the safeguard
provisions of the Agreements had been used at all.  Referring to the special safeguard measures in the
agricultural sector stipulated in Article 14 of the FTA between Hungary and Latvia (and Article 12 of
the FTA between Hungary and Lithuania), she said that  there seemed to be great flexibility for either
Party to impose special safeguard measures.  She w ondered whether there were any legal constraints on
doing so since it seemed possible that a Party wishin g to reimpose the MFN rate could do it indefinitely.
17. The representative of Hungary said that his de legation was of the view that the Pan-European
System of Cumulation provided stability, transparen cy, and predictability to third-country suppliers
while in no way hindering trade with them.  Prefer ential rules of origin and their relation to the
examination under Article XXIV was the subject of a systemic debate.  His delegation was of the view
that such rules were in fact not part of the exam ination.  In response to the question on safeguards, he
said that there was a special consultation mechanis m to avoid application of agricultural safeguard
measures but that the overall application of safeguar d measures was stipulated in Article 31 of the FTA
between Hungary and Latvia (and Article 29 of  the FTA between Hungary and Lithuania).
C. S ECTION IV - O THER
18. The representative of Australia asked for more details on the evolutionary clause which
provided for the possibility of extending the cove rage of the Agreements to new fields, including
services.  In particular, he asked whether there was a timeline connected to the evolutionary clause.  The
representative of Hungary cited the relevant Article, which appeared in both Agreements: "where a
Party considers that it would be useful in the inte rest of the economies of the Parties to develop and
deepen the relations established by this Agreement by extending them to fields not covered thereby it
shall submit a reasonable request to the other party.   The Parties may instruct the Joint Committee to
examine such a request and, where appropriate, to ma ke recommendations, particularly with a view to
opening negotiations.  Agreements resulting from th e procedure referred to in paragraph 1 will be
subject to the ratification of the approval by the Parties in accordance with the internal legal
procedures."  He found the text to be self-explanat ory but added that if a substantial change were to
occur, the Parties were under obligation to make the necessary notification to the CRTA in accordance
with the Understanding.
19. The representative of the United States asked whether there was anything in the Agreements
that prevented the Parties from making MFN concessions  and whether any of the Parties was required to
allow for margins of preferences.  The representative of Hungary replied that there was nothing in the
Agreements which would prevent the Parties from granting MFN concessions in any other context.
20. The Chairman said that the first round of ex amination of the Agreements had allowed the
Committee to clarify a number of issues but that  some others were pending.  He proposed that
delegations wishing to ask additional questions forw ard them to the Secretariat by 10 November.  The
Parties would then submit their replies as soon as possible but not later than 20 December.  The next
round of examination could then be scheduled for early 2001.WT/REG83/M/1
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21. The Committee took note of the comments made.
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