RESTRICTED
WORLD TRADE WT/REG1/M/1
WT/REG2/M/1
ORGANIZATIONWT/REG7/M/1
WT/REG8/M/1
WT/REG9/M/19 June 1997
(97-2394)
Committee on Regional Trade AgreementsSeventh Session
EXAMINATION OF THE INTERIM AGREEMENTS BETWEEN THE
EC-BULGARIA AND EC-ROMANIA,
AND OF THE FREE TRADE AGREEMENTS BETWEEN
THE EUROPEAN COMMUNITIES AND ESTONIA, LATVIA AND LITHUANIA
Note on the Meeting of 5 November 1996
Chairman:  Mr. Stuart Harbinson (Hong Kong)
1. The meeting was convened in WTO/AIR/470.
2. The Committee on Regional Trade Agreements took up items B.I-V of the Agenda for its
Seventh Session, with the following corrections: Item s B.II, III and IV, relating to the EC Agreements
with the Baltic States, s hould read "free trade agreements" inst ead of "interim agreements"; Agenda
item B.V incorrectly referred to document L/7 628 and Add.1, rather than L/7618 and Add.1.
3. The Chairman proposed a structure for the examination for the purpose of expediting the work.
4. The representative of Switzerland agreed with the proposal of the Chairman, provided that each
agreement be examined on its own merit.
5. The meeting took up the following items:
A. General RemarksB. Examination of the EC-Bulgaria and EC-Romania Interim AgreementsC. Examination of the EC-Estonia, EC-Latvia and EC-Lithuania Free Trade Agreements
A. General Remarks
6. The representative of the European Communities said that in providing an overview of all
five agreements, it did not intend to have their collective conformity with WTO rules considered, but
rather to account for the shared policy goals which underpinned the Agreements in a speedy manner.  Thelonger-term goal was for each of the five agreements to have an underlying pre-accession strategy in placewith the aim at membership in the European Union (EU); the intermediate goal was the establishment offree trade agreements between the European Commun ities (EC) and each of the five partner countries.WT/REG1/M/1, WT/REG2/M/1,
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The examination exercise was aimed at that intermediate goal, though it was important to look at the
longer-term goal.  The commercial relations between the EC and each of the five partners wasevolutionary and should be seen in a transitional context.  Summaries of each of the five agreements and
the various additional protocols and changes which had been put in place since their establishment wouldbe distributed.  This information would indicate the broad effects in terms of customs duties, quantitativerestrictions, other measures, textiles, coal and steel, and so on, in tabular form.  As far as Estonia, Latviaand Lithuania were concerned, there was also a WTO accession process underway, which complicatedmatters to a certain extent.  He was of view that this Committee, rather than the accession workingparties, was the right forum to address the free trade agreements (FTAs).  The so-called EuropeAgreements, or Association Agreements, between the EC and Romania and Bulgaria were signed on 1February 1993.  Interim Agreements covering trade in goods entered into force on 31 December 1993.Notification to the GATT was made on 23 December 1994.  The Europe Agreements then entered intoforce on 1 February 1995.  For Romania and Bulgaria, their entry into force would not alter or add to the
Interim Agreements, so far as trade in goods was concerned, and the original notification remained
entirely valid.  Since the initial notification, there had been some changes to the provisions of theAgreements regarding the conclusion of a Textiles Protocol.  The two Textiles Protocols were the subjectof an additional notification made in March 1996. There had also been changes made to the substance ofthe initial agreements, which were intended to align the liberalization process with that set out and agreedto in the Agreements between the EC and the Czech Republic, Hungary, Poland and the Slovak Republic.The alignment process had been intended to bring forward the implementation dates for liberalization.
The information distributed would provide brief details.  He then said that the FTAs between the EC andEstonia, Latvia and Lithuania entered into force on 1 January 1995 and were notified under Article XXIVin June 1995.  Subsequently, Association Agreements between the EC and each partner country had beensigned in June 1995, but these had not yet entered into force.  They would neither alter nor add to theprovisions of the FTAs already concluded and notified, so far as trade in goods was concerned.Likewise, there had been no substantive changes to these provisions since notification.
7. The representative of the Euro pean Communitie s noted that questions ha d been recently received,
with respect to Bulgaria and Romania.   There had been overall rapid liberalization by the EC and a
commitment to slig htly slower liberalization by each partner over a short transition period.  In the case of
Bulgaria, tariffs had been essentially eliminated on industrial goods and would be eliminated on textiles by1 January 1997.  The transition period on the Bulgaria n side extended to 2002. Si milar criteria and similar
arrangements applied to Romania.  EC tariffs for industrial goods from Estonia, Latvia and Lithuania
were eliminated on entry into force, without a transition period.  For the partner countries, there wereshort transition periods of up to six years.  For te xtiles, coal and steel products there were separate
agreements and protocols which provided for a fairly rapid process of liberalization within the EC and aslightly slower process of liberalization by the partne rs.  Regarding rules of origin, all agreements had
protocols dealing with preferential origin rules.  A new regime should be in place for all five agreementsby the beginning of 1997.  Th e ultimate aim of th ese new rules would be to provide for full cumulation
across the Agreements to provide for a simpler and more transparent system in the overall pre-accessioncontext.  There had been, with respect to the partner countries, the prospect of some particular protectionfor infant industries, which would be governed by the overall transition period.  Each of these
Agreements covered agricultural trade and provided for a package of liberalization measures.  In the caseof Estonia, Latvia and Lithuania, a time-bound agreement foresaw a further process of liberalization.Given that four of the five partners were under going the process of WTO accession, and that these
Agreements were put in place when the Uruguay Round was being concluded, the tariffication exercisewas still underway.  He was of view that the Agreem ents taken as a whole we re consistent with the
provisions of the relevant WTO Rules, especially Article XXIV.WT/REG1/M/1, WT/REG2/M/1,
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8. The representative of the European Comm unities continued by stating that though these
Agreements would cover a large proportion of the trade between the EC and each partner, it was difficult
to provide detailed statistics, in particular for Estoni a, Latvia and Lithuania.  Relevant information began
being collected at the beginning of this year.  The commercial relationship between each partner and theEC had been significant in terms of the partner's overall trade.  In the case of Romania, imports from theEC amounted to 49.6 per cent of total imports, while the EC took in 53.2 per cent of exports.  Thecorresponding figures for the other partners were:  38.7 per cent of imports and 39 per cent of exports forBulgaria; 66 per cent of imports and 52 per cent of exports for Estonia; 50 per cent of imports and 44 percent of exports for Latvia; and 42.3 per cent of impor ts and 34.7 per cent of exports for Lithuania.  These
figures demonstrated that the Agreements covered, and had intended to cover at the end of the transitionperiods, substantially all the trade between the EC and each partner.  Although the EC had been clearly asignificant trading partner for these countries, it did not totally dominate their trade.  For the examinationexercise, it would be important to keep these Agreements in that overall context and to consider them
against the overall pre-accession process.
9. The representative of Japan referred to the statement by the United States delegation in the last
round of examinations concerning the need to secure the conformity of the Agreements with WTO rules.
He supported economic integration in Europe if this conformity existed.  He emphasized that effective
examinations would require documents to be prepar ed in a reasonable amount of time.  Although his
delegation had received answers to its questions regarding the EC-Bulgaria Agreement, it was stillawaiting replies for questions on the EC-Romania Agreement.  He acknowledged, however, that in somecases questions had not been submitted on time.  The objective of the actual examination was two-fold.First, it should improve transparency, with a view towards ensuring the consistency and compatibility ofthe regional trade agreements (RTAs) with the multil ateral trading system.  Secondly, it should identify
the systemic implications resulting from those Agreem ents in light of the different interpretations of
Article XXIV and the Understanding on the Interpretation of Article XXIV of GATT 1994 (theUnderstanding).  His delegation was particularly concerned about the coverage of the Interim Agreementsand the FTAs between the European Union and the Central and Eastern European countries with respectto the elimination of duties and other restrictive re gulations of commerce.  In this regard, it would be
important for the parties to RTAs to fulfil the obligations stipulated in Article XXIV:8, regarding the"substantially all the trade" criterion.  It was concerned about the specific treatment applied to agricultureand the special treatment which appeared to be accorded to the steel, coal and textiles sectors.  Whetherthe Agreements would raise trade barriers to third countries was of particular concern when actual injuries
were caused, as had been the case with Poland's action in the automobile sector.
10. The representative of the United States noted that the Agreements being examined were a part of
the interlocking web of preferential agreements in Europe and even outside Europe.  He elaborated on the
conditions to be fulfilled for WTO Members departing from the most-favoured-nation (MFN) obligationas embodied in Article XXIV.  In particular, RT As should contribute to overall economic welfare by
covering substantially all the trade between partners.  He stressed that his delegation supported tradeintegration in Europe and the conclusion of agreemen ts in conformity with WTO rules.  He questioned,
however, whether the FTAs which were proliferating truly provided free trade and satisfied WTOrequirements.  He noted that the EC had perpetuated a disturbing pattern of not fully liberalizingagriculture in these Agreements, despite the fact that its partners could be expected to have a comparativeadvantage in this sector and therefore contribute very significantly to economic growth.  He recalled thatit was an important function to assess the WTO conformity of each Agreement.  The Committee'sexamination process should contribute to transparency in the system and to a better understanding of thecontent and operation of each Agreement.  To make these examinations as productive as possible,delegations should update relevant information.  While the EC had provided some information on theWT/REG1/M/1, WT/REG2/M/1,
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Visegrad Agreements, his delegation had not received anything new for the Agreements currently under
examination.  With the exception of an outdated set of questions and responses for the EC-BulgariaAgreement, no information beyond the texts of the Agreements had been provided.  This situation made ameaningful examination of these important Agreements  impossible.  He asked for descriptive information
on each agreement, preferably in the form of the Standard Format.  He hoped that the Committee wouldcontinue the examinations once this information was received.  In addition, he asked that the EC provide
1995 trade data for the EC-15 with respect to the Visegrad Agreements as soon as possible.  His questions
today would first be geared towards the EC-Bulgaria Agreement and then would be more generic.
11. The representative of Canada noted the positive contribution that such agreements might make for
economies in transition and the process of integration in the world economy.   However, the fact that these
Agreements were concluded between the EC and, w ith the exception of Romania, countries which had not
yet become WTO Members, would have implications for this examination process and also the accessionnegotiations.  In particular, the situation complicated any accurate assessment of whether theseAgreements complied with Article XXIV, notably paragraph 5(b).  For instance, at least one of theParties to these Agreements was putting into place a foreign trade regime, and this had to be consistentwith WTO disciplines.  A comparison of the situation before and after the formation of the Agreementswould need to consider the moving targets which had emerged from the WTO accession negotiations.  Inacceding to the WTO, the countries had to make a number of adjustments in their foreign trade regimes toensure full compatibility with WTO standards.  Trade barriers against third countries would certainlyimpact the assessment of whether these Agreements complied with existing WTO rules, and thus wouldnecessarily have an impact on the accession negotiations.  Nonetheless, his delegation would participate inthese examinations with a view to clarifying issues for assessing the overall consistency of theseAgreements with WTO rules.  In that vein, it welcomed additional information provided that morning by
the EC and requested that additional information be submitted in the Standard Format.
12. The representative of Australia welcomed the opportunity to examine the five Agreements to
ensure that they complemented the multilateral trading system and were consistent with WTO rules.  His
delegation had submitted questions on the three Baltic Agreements.  He thanked the representative of theEC for the recently submitted information and noted that, since much of the prior information had becomeoutdated, a full examination had become difficult, particularly for those countries in the accession process;updated information would make the discussion more productive for both this process and the accession
process.  He requested that information be provided in the Standard Format.
13. The representative of the European Communities noted that, since the Agreements had been
notified two years ago, there had been sufficient time for Members to develop questions.  Due to the lack
of questions, his delegation was of the view that it had provided adequate information, especially in thecase of Romania and Bulgaria.   There had been no changes since the entry into force for the Agreementswith Latvia, Lithuania and Estonia.  Similarly, there was not much more information to be provided.Regarding general timing, he acknowledged that his delegation had been slow in providing information,but noted that it had not received many questions to prompt it.  On requests for information to beprovided in the Standard Format, he recalled that the Committee had agreed to substitute the StandardFormat for the initial question-and-answer process to speed up the examination exercise.  In the case ofTurkey, the Standard Format had been completed and distributed.  Regarding the points raised by therepresentative of the United States concerning the EC's web of agreements, he recalled that thesearrangements reflected policies which had been in place in Western Europe since the late 1950s or early1960s; they were not a new phenomenon but a further extension of successful policies.  He referred to theCommittee's report to the General Council and noted that  the statistics compiled by the Secretariat onWT/REG1/M/1, WT/REG2/M/1,
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notified agreements did not indicate a proliferation of regional agreements.  Regarding the provisions of
Article XXIV, it would be easier to answer such questions if they were related to specific rules.  Inreference to Article XXIV:4, and its provisions for WTO Members entering into preferential agreements,it seemed that such agreements should be judged on whether or not they raised barriers to the trade, ratherthan on their consequent economic effects.  He emphasized that the debate about trade creation versustrade diversion had been a relatively modern one wh ich post-dated the drafting of Article XXIV.  Since
such a debate had a degree of speculation which could affect the ability of Parties to demonstrateconformity, he recalled that the examination shoul d be based on rules and not on conformity with an
economic idea.  He was of the view that these Agreements were trade creating in absolute as well as innet terms.  Finally, regarding the representative of Canada's concerns over non-Member Parties, he said
this was a systemic issue that needed to be addressed in the longer-term perspective and suggested that itbe added to the checklist of systemic issues.  He was unclear about the Canadian representative'sarguments regarding Article XXIV:5(b).  He referred to Article XXIV:7(b) as the linkage to the work of
the Committee.
B. Examination of the EC-Bulgaria and EC-Romania Interim Agreements
14. The Chairman urged the Committee to avoid a debate on the availability of information in the
context of the specific agreements.  He noted that there had been a lull in consideration of this matter
since the examination process for these Agreements had begun in November 1994, with the notificationby the EC of its agreements with Bulgaria and Romania.  The Council for Trade in Goods subsequentlyestablished Working Parties to examine the interim agreements.  Since then, the Committee on RegionalTrade Agreements was established and mandated to carry out outstanding work on the existingArticle XXIV Working Parties.  Parties to the Agreements notified WTO Members in March of 1996 thatthe additional Protocols on Trade in Textile Products be tween Bulgaria and Romania and the EC, as
foreseen in Article 3 of the Protocols to the Europe Agreements, had applied since 31 December 1993, inthe case of Bulgaria, and 1 May 1993, in the case of Romania.  The additional pr otocols had applied since
1 January 1995. After the enlargement of the EC , the additional protocol s were amended by the
Agreements in December 1994.  Furthermore, the a dditional protocols had fore seen mid-term reviews,
the results of which became applicable on 1 January 1996, as amendments to the additional protocols.
WTO Members were invited in airgrams dated 7 April 1995 to submit to the Secretariat, written questions
relating to the Agreements.  In the case of Bulgaria, the questions and replies received were set out in
document WT/REG1/3, dated 19 December 1995.  Given the similarities between the Agreements, heproposed to use document WT/REG/1/3 as the basis for the Committee's discussion in relation to the
EC's Agreements with both Bulgaria and Romania.
15. The representative of Romania  said the comments made by the representative of the EC were
comprehensive and he did not have anything substantive to add.  He underlined the importance of the
Europe Agreement in the process of the economic refo rm and restructuring underway in his country.  The
Agreement eased the way towards Romania's consolidation as a market economy and its integration intothe world economy, while keeping with the principles, rules and disciplines of the world trading system.
16. The representative of Bulgaria strongly supported the statements made by the representative of the
EC.  It had been his country's belief that the EC-Bulgaria Agreement had been of great importance for its
objectives, and was in conformity with WTO rules.  It expressed his country's desire to become a WTOMember.WT/REG1/M/1, WT/REG2/M/1,
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17. The representative of the United States said that his comments, as well as the questions addressed
to the delegations of Bulgaria and Romania, would be essentially applicable to the other agreements under
examination, and requested that the questions also be replied at a later stage by other EC partners.  Henoted that the response to question 1.1 indicated that there had been various factors that prevented anindication of the volume of trade covered by the Agreements.  Article XXIV required a schedule for theelimination of barriers to be provided when a transition period was used.  Indications on the volume oftrade liberalized at certain milestones during this period would be fundamental for the examination.Articles 4 and 5 of the EC-Bulgaria Agreement seemed to provide such milestones. He asked the Parties
to provide this information for each of the Agreements under review.
18. The representative of the Euro pean Communities said that for industrial products in 1996, 71 per
cent of EC imports into Bulgaria were entirely tariff free; the percentage was expected to increase to 88 in
1997, remaining at that level in 2002.  For Romania,  comparable figures were 66 per cent in 1996 and 97
per cent in 1997 and 2002.  The figures were deliberately conservative and did not take into account the
trade in processed agricultural products, which amounted to about 2.4 per cent of total trade for Bulgaria,and 0.6 per cent for Romania.  In the case of processed agricultural products, the industrial aspects ofsome of the protective measures in  place at the begi nning of the transition peri od were being eliminated.
For agricultural products, he did not have estimates, although liberalization was extended under theAgreements.  It was difficult to calculate coverage for the entire schedule, because at the time ofconclusion of the Agreements, the EC Enlargement was in process, the Uruguay Round was beingcompleted, and the reform of th e Common Agricultural Policy was underw ay.  In addition, four of the
five countries at issue were also negotiating WTO accession.  Since many elements in the equation werenot fixed, it would be difficult to present clear milestones.  Figures for the EC15 for 1995 were the onlycomplete year available thus far.  For EC trade in agricultural products, two-way trade with Bulgariaamounted to 11.59 per cent.  In the case of Romania, the figure was 5.4 per cent.  These figures includedprocessed agricultural products and excluded fish.  The Bulgarian imports from the EC were 11 per centof total imports and 11.22 per cent of total exports.  In the case of Romania, imports were 3.48 per cent
of total imports, with exports being 7.14 per cent.
19. The representative of the United States noted that Article XXIV:4 stated that a free-trade area
should not raise barriers to the trade of third partie s.  Article XXIV:5(b) provided that the duties and
other regulations of commerce should not be higher or more restrictive after the formation of a free-trade
area or adoption of an interim agreement leading to a free-trade area, than the corresponding duties andother regulations of commerce that existed prior to it.  Raising MFN duties while at the same timenegotiating FTAs would lead to preferential treatment for a significant portion of a country's trade. In hisdelegation's view, such a situation failed the test of Article XXIV:5(b).  He asked the Parties to indicatewhether MFN duties or other barriers had been raised or established during negotiations or prior to theentry into force of each Agreement.
20. The representative of the European Communities replied that the question had been predicated on
a reading of Article XXIV:5(b) which had been not shared by all Members.  He said that the word
"applicable" had resulted in conflicting interpretations, such as the one presented by the representative ofthe United States, who had said "in force".  The Understanding had clarified this issue for the formationof a customs union, but not for the formation of a free trade area.  The point was a systemic issue.  Inreply to the specific question, he clarified that none of the Parties to the Agreements had raised MFNrates in the period under consideration.  There had been an import surcharge for balance-of-paymentsreasons in Bulgaria.  This was applied on an MFN basis without any adjustment of margins of preferenceand would be subject to examination under the balance-of-payments provisions of the GATT.WT/REG1/M/1, WT/REG2/M/1,
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21. The representative of Japan referred to textiles, coal and steel, mentioned earlier as exceptional
items.  When the EC had provided the figures for its aggregate trade on industrial products by the year
2002, there had s till been a considerable percentage of trade not entirely liberalized.  He asked if the
Parties had particular plans to liberalize these areas.  He noted that the information provided did notaddress such issues.
22. The representative of the European Communities replied that for Bulgaria, the figures he had
presented before for 1996, 1997 and 2002 were comprehensive and represented the percentage of total
trade liberalized at the end of the transition period, including agriculture.  The figure of 88 per centincluded textiles and steel.  It would be important to distinguish between  what had been the case during
the transition period and what it would be later.  The 88 per cent figure erroneously depicted it as beingthe percentage of industrial trade that would be liberalized, while it was actually the percentage of totaltrade.  The figure of 11.59 per cent for agricultural trade had been close to the 12 per cent residual.  In
the case of Romania, the information he had provided earlier did not include agriculture.  The 97 per cent
of trade liberalized at the end of the transition period included textiles and steel, though it did not takeaccount of trade in processed agricultural products.  Nevertheless, there had been coverage andliberalization of agricultural trade.
23. The representative of Australia  said the figures were helpful and requested them in written form.
He noted confusion as to whether agriculture had been included.24. The representative of the European Communities said his delegation would provide the
information in writing.25. The representative of Japan asked for clarification regarding the end of the transition period and
what would be liberalized.  Particularly, he asked if some duties or regulations would be maintained, such
as those for textiles or steel.
26. The representative of the European Communities referred to the tables presented.  The left-hand
column listed the product area and the Protocol CECA for coal and steel; the middle column listed the
commitments to liberalization by the EC; and the right-hand column listed the commitments toliberalization by the partner country.  So far as tex tiles were con cerned, EC customs duties would end on
1 January 1997 and quan titative restrictions on 1 January 1998; transitional dates would be
1 January 2002 for Romania and 1 January 2001 for Bulgaria. For coal and steel, EC customs dutieswould be ended on 1 January 1996; in Romania, duties would end on 1 January 1998 for some steelproducts and 1 January 2002 for other, while those for coal had been removed upon entry into force, ashad quantitative restrictions for both coal and steel; for Bulgaria, certa in coal and steel products had
transition periods that provided for the elimination of duties on 1 January 1998 and others on 1 January2002.
27. The representative of Japan asked whether, at the end of the transition period, the only tariffs that
would remain would be for steel, and whether there would be restrictive measures for agriculture in the
case of Bulgaria.  He referred to the figures mentioned for agriculture, and noted the small difference of0.4 per cent.
28. The representative of the European Communities said that at the end of the transition period,
tariffs and quantitative restrictions would be eliminated entirely for the two-way trade in industrial goods
and for those products in the agricultural sector covered by the Agreement.  Restrictions would remain foragriculture, although there had been liberalization within that sector and there was a commitment toliberalize further.WT/REG1/M/1, WT/REG2/M/1,
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29. The representative of the United States said that the EC's answers illustrated that facts and
specific answers were very useful.  He was pleased to hear that no increase in MFN duties had occurred.
Turning to questions 2.1 through 2.5, he requested clarification from the delegation of Bulgaria.  He alsoasked the signatories of the other agreements to explain the situation with respect to their policies andpractices on such measures.  Referring to Article XXIV:8(b) provisions, he observed that Articles 29
to 31 of the Europe Agreements had excluded the bulk of agricultural trade between the Parties, asalready noted by the representative of Japan, and Annex 1 of each Agreement specified which industrialproducts were permanently excluded from coverage.  Would trade liberalization provided for in theAgreement be extended to other agricultural products currently excluded?  If so, when?  Why had somany important items been excluded in Annex I?  In his delegation's view, the assessment of the
"substantially all the trade" condition could not be made solely on a mathematical basis, particularly ifthere were items where no trade currently existed due to normal trading patterns or to restrictive tradebarriers.  If normal trading patterns were the cause , it did not make sense to exclude them from FTA
coverage.  If not, the only possible conclusion would be that the elimination of duties and other trade
measures was not intended for these items on any basis.  Thus, "substantially all the trade" could not bemet by excluding large numbers of items from liberalization.  To comply with Article XXIV, the Partiesto the Agreement should extend the Agreement to those products currently excluded, particularly toagricultural products.
30. The representative of the European Communities said that, with respect to the definition of a free
trade area in Article XXIV:8(b), it would be interesting to know th e agreed position regarding the non-
trade of goods, or goods where there had been no trade.  He noted that it might be a systemic issue and anarea where the practice of the GATT had been less than clear.  In the case of agriculture, for the ECAgreements with Romania and Bulgaria, liberalization commitments had been expressed in separatechapters for industrial products and agricultural products; this had been an arrangement of convenience toreflect the way the tariff was organized, and was not  an exclusion.  Chap ter 2 of T itle 3 of each
Agreement would apply to agricultural products.  Thus, agriculture had been covered, and a commitmentto agricultural liberalization was demonstrated despite some vagueness about further liberalization.  Annex
I followed the Uruguay Round definition of processed ag ricultural products.  It did not consist of a list of
products permanently excluded from liberalization, but a list of products where particular treatment hadbeen provided within the coverage of the two Agreements.  It was consistent with the broader practice ofWTO Members in dealing with processed agricultural products.
31. The representative of Australia asked about the proportion of trade covered by agricultural
liberalization and what would be free of tariffs or quantitative restrictions at the end of the transition
period.  He noted that Article 15, paragraph 2 of the Agreements provided that products entering the ECwith reduced duties and levies, as listed in Annex XI, were to be within the limits of EC quotas.  Hewanted assurance that this provision would not affect the access of third parties to global quotas.  Heasked for elaboration regarding the reference made in Article 16 to "serious disturbances in the market"that would give cause for consultations.
32. The representative of the European Communities said that it was estimated that at least 50 per
cent of agricultural trade would be liberalized at the end of the transition period.  The EC had a mandate
to negotiate further liberalization in agriculture, but it was too early to offer any insight into where thatprocess might lead.  Regarding the question on "serious disturbances", he said it would be difficult toprovide a comprehensive answer on the possible application of a provision which had been intended todeal with situations that were unexpected or unforeseen.  He asked the representative of Australia toexplain what sort of answer he expected, or to indicate if he had concerns regarding a particular productor practice.WT/REG1/M/1, WT/REG2/M/1,
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33. The representative of Australia said he was looking for assurance that any measures that might be
implemented under this article would not affect the access of third countries to the markets of the Parties
to the Agreement.  The representative of the European Communities noted that the point also related to
the quota question that Australia had also asked.   He was not in a position to offer a categorical answer
but would return to the issue later, since it required a comprehensive and accurate answer.
34. The representative of Canada had a similar question regarding specific tariff-rate quotas (TRQs)
on agricultural products that had been negotiated as part of these Agreements.  He asked how they worked
and how they related to MFN quotas in more general terms.  Was further liberalization envisaged?  The
two Agreements contained provisions for further negotiations on agriculture once the WTO accessionprocess was completed.  For Bulgaria, it was Article 15.5 of the Agreement.  He asked for a descriptionof how the two liberalization processes would converge , in terms of the administration of TRQs for trade
in certain agricultural products.
35. The representative of the Europ ean Communities replied that such  a situation involved the wider
question about the operation of the agriculture regime and how it meshed with the EC's WTO
commitments in agriculture.  He assured that these questions would be answered in due course.
36. The representative of the United States said that once an FTA was implemented, it provided a
level of tariff preference to and among the parties to th e agreement.  As a result of other agreements with
other trading partners, one or some parties to an FTA might extend margins of preference to third parties.With the Enlargement of the EC, the consequent change in membership of the EFTA, and EEAmembership by some EFTA members, there was the possibility that some or all of the current Parties tothe Agreements under examination were considering membership in the EC and the other evolvingagreements, such as the CEFTA.  He wondered how the overlapping tariff preferences granted by each ofthe Parties to the EC, as well as to the other partners, would mesh.  He asked whether these FTAsprovided or allowed for margins of preference to be granted to third parties and how rules of origin wouldwork and interlock.  He asked about the benefits the EC received with certain EFTA countries underthese FTAs as a result of the establishment of th e EEA.  He wondered whether these Agreements had
implications for other agreements and asked how the tariff reductions taken by the Parties to theseAgreements would affect the level of preference granted to the parties to other agreements, and whetheran absolute percentage margin would be maintained.
37. The representative of the Europ ean Communities agreed with the initial proposition set out by the
representative of the United States regarding rules of origin being complex due to the existence of
overlapping free-trade areas and customs unions.  The overlapping agreements among the EC, the EEA,
the EFTA, the CEFTA, and others made it complicated to work out exactly where and how thepreferential systems operated.  For most products, a zero tariff resulted in no margin of preference.  Theproducts in question had originated in such territory and therefore enjoyed the benefits of a wide measureof tariff elimination and other restrictive regulations of commerce, as defined in Article XXIV:8(b).   A
new set of rules of origin, based on existing EEA rules, was being developed.  It was intended to providefor full cumulation across all the Agreements cited.  To eliminate much of the potential confusion whichexisted among various FTAs and to create the underpinnings for a genuinely enlarged economic space, itsought to put a single, simple, and effective system in place.  Once completed, much of the questionwould be solved for substantially all the trade and substantially all the Agreements.   Barriers at theborder, in the form of tariffs and other restrictive regulations of commerce, had been eliminated or were
in the process of being eliminated.  With the possibility of full cumulation across the range of agreements,questions about residual preferences would become irrelevant.WT/REG1/M/1, WT/REG2/M/1,
WT/REG7/M/1, WT/REG8/M/1,WT/REG9/M/1Page 10
38. The representative of Japan  noted that his delegation's questions referred to Article 23,
section 3.1 of the Europe Agreement.  In their replies, dated December 1995, the Parties had claimed that
the provisions of Article 23 had not been invoked by Bulgaria.  He asked if this was still the case, and if itwas also the case with regard to Romania.  Article 23 referred to the protection of infant industries andmentioned exceptional cases for se ctors undergoing restruct uring or facing serious difficulties in the
transition period.  What were the specific criteria, and which infant industries and sectors wereundergoing restructuring or facing serious difficulties?  Similarl y, question 3 mentioned that measures
could not exceed a certain threshold or go beyond five years.  What was meant by "certain threshold"?Finally, if Bulgaria or Romania invoked this Article, could similar actions be taken against thirdcountries, or only with regard to the EC?  He asked the delegations of Bulgaria and Romania to explainwhat kind of measures they had had in mind in formulating this Article. Concerning section 3.2, he saidthat Article 31 was no longer relevant.
39. The representative of the European Communities noted that these provisions in the respective
Agreements had never been used by Romania or Bulgaria. The threshold had been 25 per cent of global
imports. The circumstances where the provisions might be used were not defined since it would bedifficult to speculate about the economic circumstances of a country going through a very difficult processof economic transition.  The Agreement simply provi ded for a possi bility that certain circumstances might
arise which should lead to a policy response.  Similarly, there had been no actual experience to point toparticular criteria.
40. The representative of Canada noted that the Agreement allowed Bulgaria or Romania to raise
tariffs but still preserve a certain degree of preference for products originating in the EC.  He asked how
such action could be taken under a TRQ and whether it would have any bearing on the quantity includedin the in-quota preference.  Would there be an adjustment to the size of the TRQ, or only to the size ofthe in-quota rate and out-quota rate?  He noted that there was an indication that this particular provisionwould expire at the end of the transition period.  In some areas of agriculture, there had been acommitment to enter into additional negotiations, perhaps after Bulgaria joined the WTO.  He asked ifthese particular provisions would be applicable to future negotiations.  Finally, regarding Bulgaria'srecent balance-of-payments measures, he asked if there had been an exception for EC products, or if themeasures were applied on an MFN basis.
41. The representative of the European Communities replied that the balance-of-payments measures
had been applied on an MFN basis. Article 29 was intended to provide for exceptional measures to be
taken during the transition period and should be seen in that context.  If the exception had been invoked,customs duties would be raised against the EC.  However, preference towards the EC would bemaintained.  Nevertheless, the effect would restrict considerably the options open to either Bulgaria orRomania.  Where MFN tariffs were at zero, these fell entirely outside the provision.  There had been noreference in this part of the Agreement to the management of TRQs.  For all of the industrial
arrangements, except for one or two particular products, the question of TRQs did not arise in therelations between the EC and its partners.  The exception might involve some agricultural products notbeing liberalized within the transition period.  However, such a circumstance had yet to arise and wouldonly apply to the tariff levied for trade between the EC and the partner country.
42. The representative of the United States asked the Parties to comment on any non-tariff import
measures, such as charges and quan titative restrictions, th at were applied to th ird countries but not to
intra-FTA trade.  He also requested a list of such measures.
43. The representative of the European Communities said that compiling a list of all quantitative
restrictions maintained against third countries, but not applied to FTA partners, would involve aWT/REG1/M/1, WT/REG2/M/1,
WT/REG7/M/1, WT/REG8/M/1,WT/REG9/M/1Page 11
disproportionate commitment of resources.  He was advised, on a preliminary basis, that Romania did not
maintain quantitative restrictions, but did have TRQs.
44. The representative of the United States did not anticipate that the list would be so extensive as to
create a burden.  His delegation was interested in such a list since it would address the concerns of third
parties.  He offered assistance to the EC and the other signatories to facilitate such a task.
45. The Chairman ended the discussion on the Agreements between the EC and Bulgaria and
Romania and thanked the delegations involved.46. The Committee took note of the comments made.
C. Examination of the EC-Estonia, EC-Latvia and EC-Lithuania Free Trade Agreements47. The Chairman said the Committee would now consider the FTAs between the EC and Estonia,
Latvia and Lithuania, respectively. The examination process for these Agreements had begun in
June 1995 when the EC notified WTO Members that the FTAs between it and Estonia, Latvia andLithuania had come into force 1 January 1995, as contained in documents WT/REG7/1, WT/REG8/1 and
WT/REG9/1.  The Council for Trade in Goods had subsequently established three working parties toexamine each of these FTAs, and the examinations had been transmitted to th e Committee later.  WTO
Members had been invited in airgrams dated 15 November 1995 to submit to the Secretariat writtenquestions relating to the Agreemen ts.  Although a number of questions had been received  and transmitted
to the Parties to the Agreements, there appeared to be some doubt as to whether they were properlyreceived.  He proposed to follow a similar structure for discussion of the provisions of these FTAs as forthe EC-Bulgaria and EC-Romania Agreements.
48. The representative of Australia asked if any sectors were excluded from coverage in these FTAs,
and if there was a timetable to include excluded sectors under the Agreements.  He asked about the areas
still subject to tariffs, tariff quotas and other non-tariff import restrictions, and about the proportion of thetrade still subject to such measures after a period of ten years.
49. The representative of the European Communities replied that no sectors were excluded from
coverage in the FTAs.  At the end of the transition period, the only sectors where there might remain
some residual measures between the EC and the partner countries would be agriculture and fisheries.Review clauses existed in all of the Agreements, with a view towards further liberalization.
50. The representative of the United States asked for an indication of the volume of trade that would
be liberalized at the time of entry into force of the FTAs, and after five and ten years.51. The representative of the European Communities replied that his delegation did not have this
information due to problems with statistics.  As far as industrial products were concerned, customs duties
and quantitative restrictions had been lifted entirely for Estonia as of entry into force.  For the other twopartners, their timetable for liberalization would be within a 10-year period.   The proportion of totaltrade accounted for by agriculture and the fisheries sectors between the EC and its partners in 1995 werethe following:  for Estonia, the figure was 9.5 per cent of both imports and exports; for Latvia, 10.4 percent; for Lithuania, 11.2 per cent.
52. The representative of Japan noted that textiles were specified in the industrial sector, particularly
for Latvia and Lithuania.  In the case of Lithua nia, the documentation referred to non-discriminatoryWT/REG1/M/1, WT/REG2/M/1,
WT/REG7/M/1, WT/REG8/M/1,WT/REG9/M/1Page 12
treatment for quantitative restrictions.  He asked if those measures would cease to exist by the end of the
transition period.
53. The representative of the European Communities replied that the timetable had yet to be fixed.
The Parties would proceed over the next year to put the appropriate timetable in place.54. The representative of the United States  asked whether MFN duties or other barriers were raised
prior to, upon entry into force of, or during the life of each Agreement.  He requested a response from
other signatories beside the EC, since they might provide additional information.  He asked if quantitativerestrictions would be applied on a non-discriminatory basis toward third countries, and under whichprovisions of the GATT.
55. The representative of the European Communities replied that for Estonia, Latvia and Lithuania,
the MFN rates had not been and would not be raised, nor would new quantitative restrictions or other
restrictions be imposed vis-à-vis third parties.   Sin ce all three countries were in the process of negotiating
WTO accession, it had not been possible to determine the results of the accession process in terms oftariff or other market access commitments.   The three Agreements would not affect the outcome of thoseaccession negotiations.  Since he could not predict their results, he was not in the position to answer thequestion regarding particular tariffs or quotas.  He was of view that there was no causal link betweenthese Agreements and the results of those negotiations.
56. The representative of Canada was sceptical that the existence of the FTAs would not affect the
outcome of the WTO accession negotiations for these three countries since the basis for the negotiation
had been altered.  What duties had been applied before and after the formation of the FTAs?  He asked ifthere had been any changes to MFN tariff and non-tariff treatment and how the "applicable" rates shouldbe interpreted after the formation of the FTAs, since there existed no WTO legal basis for them, in anarrow sense in terms of duration, or in a broad sense in terms of commitments that these Parties mightundertake in joining the WTO.  He noted that the Committee would be informed of these Parties' tariffcommitments entered into vis-à-vis the rest of the WTO Members only once the accession negotiationswere completed.  Only then would the Committee be able to assess the extent of the preferences grantedto the EC.  He asked for additional information on non-tariff measures that might be in place, such astechnical barriers to trade, sanitary and phytosanitary measures, and import licensing.
57. The representative of the European Communities replied that the EC had not raised its tariffs
since the formation of the FTAs, nor had any of the partners.   The conservative definition of
“applicable” in Article XXIV:5(b) had in the past meant bound rates, or the rates the Parties could applyand still meet their obligations under the WTO.  Where a party to an FTA was not a WTO Member, the
definition would be difficult to determine because there was no bound rate; the only bound rate would bethe EC's own rate.  In an FTA with a party that later became a WTO Member, the binding would followthe conclusion of the FTA.  As a result, a different or higher MFN rate might be applied after accessionthan that applicable beforehand. The accession process would involve the negotiation by the Members andthe acceding country for a market access package.  This accession package could be interpreted as theconsequence of a negotiation to raise a bound rate.  He noted that in successive agreements covering thesame subject, the latest would take precedence.
58. The representative of Australia asked if any quotas or other kinds of quantitative restrictions
would be applied at the end of the transition period for agricultural products.WT/REG1/M/1, WT/REG2/M/1,
WT/REG7/M/1, WT/REG8/M/1,WT/REG9/M/1Page 13
59. The representative of the European Communities said that the FTA with Estonia had to be
distinguished from those with Latvia and Lithuania.  For Estonia, there had been a big-bang effect marked
by the absence of a transition period, whereas for the other two partners, short transition periods had beenprovided.  For Estonia, there were agricultural restric tions still in place.  This would likely be the case for
Latvia and Lithuania as well, although review clauses called for further liberalization to be considered.
60. The representative of Australia asked about quota access and MFN quotas undertaken by the EC.
61. The representative of Canada was of view that selective liberalization commitments for
agricultural products would affect the outcome of WTO accession negotiations with the three partners.
The sensitive nature of agricultural products would make it more difficult  to make meaningful concessions
in that sector than in industrial products.  For instance, Estonia had stated that there would be norestriction for agricultural products for EC products, whereas the EC had offered selective liberalization
for products of Estonian origin. However, it was confusing how Chapter II, Article 14, of the Agreement
said that continued liberalization would take place "product by product and on an orderly and reciprocalbasis.  He asked if Estonia had indeed fully liberalized, or whether there were other provisions of theAgreement which made liberalization conditional.  He asked about TRQs that had been granted by each ofthe Parties and about the preferential TRQs granted to the EC and the proportion they represented interms of total imports.  This information would allow for an estimation of the overall trade liberalizationimpact of the measures undertaken by these three countries.
62. The representative of the European Commun ities replied that the negotiation of accession
protocols covered access to the market of the acceding country and, consequently, remained an issue open
for negotiation.  Once this issue had been settled, all other WTO Members would accept whatever had
been agreed, ranging from classical tariffs to agricultural market access.  Estonia followed a policyloosely termed as free trade, since no restrictions were in place.  Consequently, the "reciprocal" phraseused in the Agreement was relevant only where Estonia had further concessions left to offer.
63. The representative of Canada asked about the duties applicable before the entry into force of the
FTAs.  He asked about the extent of liberalization in the agricultural sector, the magnitude of the TRQs
granted, and how much they represented in terms of the size of the importing markets for each of theBaltic States.  He was aware that agricultural TRQs were only applicable in two of the three cases.
64. The representative of the European Communities asked for clarification regarding the question
about duties applicable before the entry into force of the FTAs.65. The representative of Canada requested information on the duties applicable for both industrial
and agriculture products before the FTAs entered into force, compared to the rates afterward on an MFN
basis, to determine whether there had been an increase in the margin of preference over the last year.  Ifthe three countries had been WTO Members, they would have had binding commitments to respect.
66. The representative of the Euro pean Communities replied that the request went beyond the scope
of the examination. Whether or not any of the c ountries were WTO Members, the creation of an FTA
with the EC would be expected to create a margin of preference. He believed that the general rates ofMFN duty had not been raised, and the creation of the FTAs would not result in a wider margin ofpreference. However, the link to the accession process was not yet known.  The existence of theAgreements did not directly affect the result of th at negotiation.  Although the Agreements would factorWT/REG1/M/1, WT/REG2/M/1,
WT/REG7/M/1, WT/REG8/M/1,WT/REG9/M/1Page 14
into the market access negotiations, they were not the only causes or determinants of what the results of
those negotiations would be.  Thus, there might well be areas within the agricultural sector in Latvian andLithuanian import regimes where the Agreements with the EC had altered access for particular productsto the markets of those two countries.  He would look for information on the extent to which these import
restrictions were altered in a preferential way.
67. The representative of the United States asked if margins of preference were to be maintained
when safeguard provisions were invoked.  If so, did the Parties observe the provisions of Article XIX in
the application of safeguard measures that involved third country trade?  He asked about the guidelinesand the context in which safeguard actions might be applied.
68. The representative of Japan asked if Article 22 of the three Agreements had been invoked thus
far.69. The representative of the European Communities replied that the provisions of the Agreements
required that a margin of preference vis-à-vis the EC be maintained.  The criteria for safeguard provisions
called for consideration of a wide range of potential economic activity in unforeseen circumstances for thethree economies undergoing difficult transition phases.  In this regard, once they became Members, they
would need to act consistently with the obligations assumed in the course of accession, including thosewith respect to WTO rules on safeguards.
70. The representative of the European Communities asked delegations to submit comments and
questions in writing.  It would reflect on them, and offer more developed answers as a result.71. The representative of the United States said that the questions and comments presented by his
delegation were preliminary in nature.  He was of the view that the absence of information frustrated the
examination process.  He thanked the Parties for the thoughtful responses to questions posed and said thesuggestion made by the EC representative regard ing the submission of questions was reasonable.
72. The Chairman said the process of examination had significantly raised the standards regarding
information.  He urged Members to be patient in the process since extra work would be required as a
result.  In the same context, the examination had considered the effects of preferential agreements and notjust their conformity with the rules.  The Committee needed to reflect on the extent to which it waschanging the procedures and the implications of doing so.  He was impressed by the cooperative spirit ofthe meeting and the genuine effort by the Parties of the Agreements to clarify matters.  He requested thatdelegations submit their questions in writing.
73. The Committee took note of the comments made.